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July 10, 2006 02:00 AM

Goodyear plans cuts in private label tires

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    AKRON—Goodyear will cut its production of private label tires in North America in the next 12 months by about a third to focus on more profitable segments of its business.

    The decision, which affects up to 10 unnamed private brands representing about $300 million in annual sales, will result in reducing capacity by about 8 million units, Goodyear said. The Akron-based company makes private label tires at five plants: Fayetteville, N.C.; Tyler, Texas; Gadsden, Ala.; Union City, Tenn.; and Valleyfield, Quebec, according to the United Steelworkers union, which represents workers at all five sites.

    Goodyear wouldn´t respond to an analyst´s report that the decision would result in the closing of a factory, most likely Tyler or Fayetteville. The size of the capacity reduction is about equal to that of a small tire plant.

    Investment bank J.P. Morgan Securities Inc. said in a note to investors that closing a plant could save Goodyear up to $100 million a year in overhead and labor costs.

    Regarding the private brands, Goodyear said it will work closely with the affected customers to help them find other sources of supply or switch to alternative Goodyear products.

    Goodyear declined to identify which brands are affected. St. Peters, Mo.-based Sure Tire Co. acknowledged its Heritage, Remington and Summit brands will be impacted by Goodyear´s decision and American Tire Distributors Inc. said its Winston brand is affected.

    Goodyear phased out its own Monarch brand about a year ago.

    Huntersville, N.C.-based ATD said Goodyear has told ATD management it will work with the distributor on a transition strategy for the next year, according to Phil Marrett, ATD´s senior vice president of marketing/procurement.

    Marrett said ATD will discuss with Goodyear any additional supply options the tire maker may have for it, but it already has relationships with some offshore manufacturers and may look to source tires from Asia.

    Goodyear had produced Winston passenger and light truck tires exclusively for ATD for the past seven years, he said. Before that, both Goodyear and Cooper Tire & Rubber Co. shared the production of that brand.

    Marrett declined to discuss Winston´s sales or units. But he said Goodyear´s decision "didn´t come as a surprise because most American manufacturers are really having difficulty when it comes to this cost segment in producing the product that can compete with some of the off-shore merchandise that´s coming in.

    "It´s possible that we will see continued downward pressure in this area."

    Sure Tire said it is working with other manufacturers to transition its private brand business from Goodyear. Sure Tire already has other producers for its Heritage, Remington and Summit brands.

    Goodyear steadily has drawn back its private label business for the past few years as it sought to turn around its struggling North American Tire business unit. Some of the private label business, Goodyear routinely said, was not consistently profitable.

    Greg Hathcock, president of Vogue Tyre & Rubber Co., said Goodyear´s decision would not affect his company at all. Vogue sells 38 different sizes of passenger and light truck tires, all made exclusively by Goodyear, he said.

    Sears Tire Group and Canadian Tire Corp. also said they are unaffected.

    Discount Tire Co. said it has yet to hear from Goodyear on the status of its Arizonian, Pathfinder, Roadhugger, Silver Edition and Mohave brands, and couldn´t comment.

    Big O Tires Inc. will not see production of its Big O brand cut by Goodyear, according to Steven Steffens, Big O´s vice president of marketing. He said Goodyear had announced it intended to build upon its retailer-specific product lines, and Big O falls within that category.

    In May 2003 when Goodyear outlined its turnaround plan, Chairman and CEO Robert Keegan said the tire maker would be more selective with both its private brand and original equipment businesses, focusing more on profitable OE contracts and building its Goodyear and Dunlop brands.

    As it announced the private label production cuts in June, Goodyear didn´t say what, if any, provisions it would take against earnings to cover the decision. Jonathan Rich, president of North American Tire, said the overall business climate-weak industry demand and continued raw materials price increases-probably will result in a drop in operating income this year for the North American business.

    "Our intention is to build upon the market strength we have established in our branded and retailer-specific product lines," Rich said in a prepared statement.

    This change occurs as Goodyear is entering negotiations with the USW for a new master contract covering eight tire plants and four engineered products plants.

    Other firms that market Goodyear-made private brand tires include President Tire Canada Inc. (President brand), TBC Corp. (Cordovan, Harvest King, Multi-Mile, Power King, Vanderbilt brands), Tire Kingdom International Inc. (Heritage brand), Universal Cooperatives Inc. (Agri Master and Co-Op brands) and Wal-Mart Stores Inc. (Douglas brand).

    The other marketers either declined comment or could not be reached.

    This story was a Tire Business staff report.

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