NASHVILLE, Tenn.-After three years of intense effort to reform Goodyear´s massive North American tire business, the firm´s top executives feel optimistic, confident-and paranoid.
With a turnaround plan forged in the dire days of early 2003-when Goodyear was reeling from a $1.2 billion loss in 2002 and dealers for the most part were profoundly frustrated-company officials outlined specific goals they wanted to reach by year-end 2005. Now, with the year and that initial phase in the history books, Goodyear officials are turning their sights to phase two with four critical initiatives to continue the company´s progress.
"As I look to the future, I´m confidently paranoid," Chairman and CEO Robert Keegan told about 2,000 dealers and their spouses during the annual dealer meeting earlier this month in Nashville. "And don´t be nervous about that, that´s exactly where you want me to be, that´s exactly the attitude you want me to have."
Wrapping Phase 1
Among Goodyear´s goals in 2003, the firm wanted to cut $1 billion to $1.5 billion in costs, gain two points of market share, reduce debt and increase revenue per tire by 4 percent. Jon Rich, president of the North American Tire unit, said the company has made "significant progress" on the goals. Some-like improving dealer relations and product offerings-have fared better than others, such as strong profitability in North America.
Goodyear and North American Tire have been in the black since the second quarter of 2004 with North America posting segment operating income of $330 million for the first nine months of 2005.
North American Tire continues to be restrained by high costs and rising raw material prices that hold a lid on growing that profitability. Goodyear´s raw material prices in the fourth quarter rose about 13 percent-higher than the firm had expected.
The unit also has failed to pull its equal weight for the company. In the first nine months of the year, it contributed 46 percent of the firm´s sales but only 28.8 percent of profits; by contrast, Latin American Tire chipped in 21.1 percent of the profit on 7.4 percent of the sales. That gap, however, has shrunk dramatically from a 41-percent to 2.9-percent disparity for North America in 2004.
Debt of more than $5 billion as well as unfunded pension liabilities also continue to plague Goodyear.
At the dealer meeting, Goodyear officials didn´t shy away from these continuing concerns.
"We´re on track," Rich said. "Obviously we´re not where we want to be profitability-wise, but I´m not discouraged that we´re way behind where I thought we might be. But we have a lot of hard work to do, we´re not going to rest."
Winning back dealers
Dealer relations seem to be a bright spot of Goodyear´s comeback efforts.
Steve Disney of Disney Tire & Rubber Co. in Louisville, Ky., now a unit of Raben Tire Co. Inc., said he feels Goodyear has lived up to its 2003 promises.
"I think basically talk is cheap," he said. "They´re going to be measured by their actions, and so far they´ve done what they said they would do.
"Their plans and their discussions and all the bullet points basically are translating into improved products and improved sales, and hopefully improved profitability for everybody."
Jim Hamilton, general manager of Graham Tire Co. in Sioux Falls, S.D., said the new products are responsible for the bulk of the improvement.
Many dealers as well as company officials cited supply-particularly in off-the-road, commercial and light truck tires-as one main area needing continued focus.
Rich emphasized that Goodyear will continue to work on its relationships with independent dealers.
Larry Mason, president of consumer tires, also drove this point home during the meeting, seeking to reassure dealers that Goodyear will not revert to old habits. Comparing its recent troubles to a near-death experience, he said Goodyear has pushed to continue adapting.
Moving to Phase 2
For the second phase of its turnaround, Goodyear plans to focus on four "critical" initiatives with the ultimate goal of growing dealers´ business, Keegan told dealers.
The first is to continue offering product innovations. Executives repeatedly said they not only wanted to offer unique products but also get them to the market faster than competitors.
"What our aim is in phase two is to take the whole new product engine we have and take both quality and performance of those new products to unprecedented levels and create a huge advantage for all of you and us at Goodyear," Keegan said.
Second, Goodyear wants to improve its marketing programs to grow the top and bottom lines for dealers. The firm highlighted several marketing plans, including providing aerial coverage for the Winter Olympics on NBC via the blimp.
Goodyear also will focus heavily on its cost structure in the second phase, Keegan said.
The company told analysts last September that it wanted to slash high-cost manufacturing capacity by 8 to 12 percent over the next three years to save $100 million to $150 million annually.
Goodyear said it will close high-cost factories globally, but it didn´t disclose how many or where they are located.
With contract talks with the United Steelworkers due this summer, Rich said the tire maker will work toward a pact that is fair to employees and the company-but primarily to customers.
Finally, Keegan said Goodyear will work to improve its balance sheet and capital structure.
At that September meeting, Goodyear said it wanted to improve its segment operating margin to 8 percent vs. 6.2 percent for the first half of 2005. Goodyear also wants to increase its North American segment operating income margin to 5 percent from 0.4 percent at 2005´s half.
Keegan said Goodyear will have to make some difficult decisions to keep its progress on track, and a few of those decisions may make some uncomfortable.
"Together we´re going to be making tough choices, we´re going to be taking some risks," he said.