(FORTUNE Magazine) – B.F. Goodrich and Uniroyal agreed to combine their tire businesses, creating a $2-billion company that will become the third-largest tiremaker in the U.S. The parent companies will hold equal shares of the new venture and operate their other businesses separately. The new company, Uniroyal-Goodrich Tire Co., should have several advantages its founders didn't enjoy. It will be well placed in both the original equipment market (Uniroyal's strength) and in the replacement market (where Goodrich excels). Moreover, it should be far less costly to run. The venture will need all the competitive muscle it can build. Goodyear, the industry leader, has significantly widened its lead over other domestic producers, and foreign companies such as Michelin and low-cost Korean suppliers have captured about 30% of the U.S. replacement market. One result has been a rash of plant closures. Jim Alexandre of Donaldson Lufkin & Jenrette reckons that some 20% of domestic plant capacity has been lopped off since 1979. Given the intense competition, Alexandre expects more industry consolidation. The next merger could well involve a foreign company like Bridgestone, which is Japan's largest tire company but has weak distribution ^ in the U.S. A linkup with a strong distributor like Firestone would make sense.