AKRON-Jilted customers, laid-off employees and competitors declared Goodyear was leaving the merchant synthetic rubber business after it pulled its chemical division off the auction block in mid-2004.
But Goodyear never did.
When the company decided in August to turn Goodyear Chemical primarily into a supplier to its tire operations, the firm never said it would dump all its customers but would handle it on a "case by case basis." That course of action left some customers without a source for SR-emulsion SBR primarily-and hunting for a replacement when supplies were tight.
Six months after the formerly stand-alone division was restructured into the company´s North American Tire business, Goodyear today continues to serve large SR customers and has no plans to abandon them, according to a top executive.
"What we´re not going to do, just like in the tire business, is leave our customers in the lurch," said Jonathan D. Rich, president of Goodyear´s North American Tire division and onetime head of Goodyear Chemical.
"We like our customers," he said. "We tried to help everybody. Those we weren´t in a position to supply, we tried to find Continued from page 1
other sources of supply. I don´t think we cut anybody off overnight."
The customers Goodyear continues to supply have had long-term arrangements with the company, and Goodyear fully intends to honor its commitments, Rich said in an interview at the company´s Akron headquarters.
If in the future, by mutual agreement, "we were to decide not to do that, we would never do it in a rash way," he said. An expert in the chemical industry said many current contracts will be up at year-end, a situation Goodyear won´t confirm.
"Our internal demand is much higher than it used to be," Rich said. "Given the volume and demand that we have today, I don´t anticipate us being in a position where our assets are underutilized. It could happen-anything can. When we built our Beaumont (Texas) plant we were in a situation where we had excess supply, but we haven´t been in that position in a few years."
To sell or not to sell
The financial community generally liked Goodyear´s decision in March 2003 to sell the profitable business-the company was in serious financial trouble and needed the cash. Today securities analysts and other industry watchers say they approve of the reversal in Goodyear´s strategy.
The tire maker probably didn´t find any takers at the price it wanted, and it would be costly to shut down the entire operation, said Dennis Virag, an automotive industry analyst and president of Automotive Consulting Group Inc. in Ann Arbor, Mich. So it´s better to bring it back in-house, make it more efficient and have it work for the company, he said.
Bill Hyde, a consultant for Houston-based Chemical Marketing Associates Inc., figures the tire maker´s top executives sat down, worked out a selling price and put it on the market. "If you get the price, you sell it; if you don´t get it, you don´t sell it," he said.
Chemical industry analyst Balaji B. Singh concurs. The president of Chemical Market Resources Inc. of Houston said in the absence of getting the price it wanted for the business, Goodyear is better off keeping it and moving it in-house.
Rich said Goodyear is producing material for use in North America and Latin America. It has more than enough demand in both regions to tie up its capacity.
"As we grow more, we´ll have to look at sourcing from others or adding capacity, but right now our first option would be to source from others," Rich said. "We have no plans at the moment to add capacity, but we retain the know-how and ability to do it."
Goodyear is one of the largest producers of emulsion and solution SBR and the only supplier of polyisoprene in North America.
Rich said the rubber industry as a whole is going through a good period, after enduring some tough times during the past decade. Supply and demand are roughly in balance, and Rich said he anticipates the industry will remain on an upswing for the next few years.
Rich, the chemist, has a soft spot in his heart for the chemical operation. As president of the North American Tire unit, however, he´s fully aware that it´s a business and must be treated as such.
The operation develops and produces synthetic rubber, antioxidants, adhesive resins and latex used in asphalt modification. Its primary function today is to supply Goodyear plants, the executive said.
"We´re in the tire business," Rich said. "And because of that we´ve spun off some parts that weren´t core to our tire business. But now the vast majority of it is. We still have a couple of small parts-like our adhesives business-that aren´t core and we´ll look at our options there."
Production of chemicals for in-house purposes has increased the last couple of years as Goodyear´s use of synthetic rubber rose in its tires because of the rising price of natural rubber.
Goodyear has a chemical technical center in Akron and chemical facilities in Beaumont (polybutadiene, solution-SBR and polyisoprene), Houston (emulsion-SBR) and Bayport, Texas, and Niagara Falls, N.Y.
The chemical products segment was the best performing business in the company last year, generating $177 million in operating earnings on sales of $1.53 billion-an earnings/sales ratio of 11.1 percent.
John Sweeney, director of tire polymers, and Tom Grolemund, director of chemical product supply, run the unit and report directly to Rich, whose time is pretty much taken up by the tire business.
When Rich ran the chemical business from July 2001 to December 2002, the tire division used about half its production and Goodyear sold the rest. Now "we´re probably more like 70-30 or 75-25," he said.
Rich said he doesn´t anticipate Good-year will ever use 100 percent of its output, but a lot of that will depend on market dynamics and what its customers want to do.
Tight supplies, bigger demand
Around 2000, the chemical industry slid into a downturn before the tire business did and chemical producers, including Goodyear, rationalized capacity. "I think now you´re seeing a situation in the entire industry-and the rubber business is no different-where capacities are tight, demand is fairly strong and pricing has been good in the industry as a whole," he said. That has helped create a rebound for chemical makers.
"We are like everybody else, subject to the raw material prices that people are seeing now," Rich said. "I think the fact that we had a lot of captive material was an advantage to us and it has helped us." The profitability of chemical companies has more to do with capacity utilization and demand than raw material costs, he added.
North American Tire has profited from pulling the chemical unit under its wing, Rich said. "Otherwise, we wouldn´t have done it."
While Goodyear has no plans to return to the open chemical market, Rich said that could change as its needs change. For instance, China´s growing demand eventually may alter Goodyear´s strategy.
"As time passes we still want to maintain our core competency in chemical engineering and material science," Rich said. "We´ll keep all of our options open-working with partners, working with third parties or putting capacity in. But we´re certainly going to maintain our core competency in engineering and material science."