AKRON-When Robert J. Keegan talks, most people listen.
The reasons are three-fold: He´s the chairman and CEO of tire giant Good-year; his company has had serious financial difficulties over the last several years; and he doesn´t speak publicly or grant interviews very often.
Although he has a large profile, he seems content to remain in the background. But there´s no doubt his hand steers the ship.
When other senior Good-year executives are interviewed, Keegan always draws praise for his style of leadership and invariably they´ll refer to strategies he initiated.
Under Keegan, the tire maker has trimmed down significantly, shedding businesses and plants in the last few years. Most recently, he said Goodyear plans to close facilities in New Zealand and England and exit 10 private label lines, which account for a third of the company´s total brand business, cutting capacity at five North American plants, where the tires are manufactured.
Those lines generated about $500 million in revenue and totaled about 8 million units in 2005, analyst John Murphy of Merrill Lynch & Co. Inc. said in a research report issued after the tire maker posted its latest quarterly financial results. Basically, the firm is streamlining its business by focusing on its branded tires, "which command a premium price and richen the mix by selling less, low-profitability private label units," according to Murphy.
That´s not enough, Keegan said during a conference call after the quarterly results were posted. He wants costs reduced by more than $1 billion by 2008.
The firm placed its Engineered Products business on the market last year and on Sept. 7 said it will sell its global tire fabric operations, including four plants, to Hyosung Corp. for about $80 million. Neither are core businesses, and Keegan´s strategy is to focus on tires.
The company posted record sales of $5.14 billion in the second quarter, a 3-percent jump from revenues in the like 2005 period. Better pricing and product mix had a lot to do with that gain. However, a weak North American replacement tire market and rising raw material costs gave the firm net earnings of $2 million in the quarter, compared with last year´s $69 million.
Leading the way
Keegan is a strong leader and a people person with clear-cut goals for the tire manufacturer, according to Chuck Sinclair, senior vice president of Goodyear´s global communications.
But the company´s top executive is also a busy man and was unable to conduct a one-on-one interview profiling him and his company´s overall game plan, Sinclair said. The chairman and CEO did respond to submitted questions with written answers.
Keegan said the decision to reduce costs by more than $1 million by 2008 is necessary for the company to remain on sound financial ground. "About one-third of those cost savings are expected to come from business process improvements, including our efforts in Six Sigma and lean manufacturing, as well as product reformulations," he said.
Part of his plan calls for the reduction of its global manufacturing base with anticipated savings of between $100 million and $150 million a year.
Goodyear´s target is to reduce tire manufacturing capacity by 15 million to 20 million tires, "or about 8 percent to 12 percent of out high-cost capacity," he said. "We have already addressed 5 million units of capacity with actions in Europe and Asia and are reviewing options for 8 million units in North America. Taken together, that´s 13 million of our 15 million to 20 million target."
The company wants to produce more tires with fewer people, at a lower cost, he said, but he won´t discuss specifics for competitive reasons. He did say that during 2005 Goodyear completed more than 1,000 continuous improvement projects and cut about $100 million in costs.
The tire maker´s cost-cutting goals "are realistic and attainable," according to Keegan. "In addition to the productivity improvements and low-cost capacity reductions, we are also anticipating significant savings through low-cost sourcing of tires, raw materials, indirect materials and capital equipment. We are also working on plans to simplify and streamline our organization."
Staying the course
When Keegan became CEO and chairman in early 2003 Goodyear was a mess and its image badly tarnished. He came into a company steeped in a culture that he knew had to be changed, Sinclair said.
"We have made good progress to date," according to Keegan.
He put in place seven strategic drivers aimed at pulling the tire maker back to respectability: leadership, focus on cash, lower cost structure, leveraged distribution, building brand strength, product leadership and advantaged supply chain.
"He´s very much in the forefront of leadership here at Goodyear," Sinclair said. "Part of the reason he seems to be in the background externally is because he focuses internally." He does meet regularly with analysts and customers around the globe.
Keegan said he believes Goodyear has the best leadership in the industry, blending quality people promoted from within with talented professionals with expertise from the outside. Of the top 24 executives at the firm, 23 were new to those positions in the last four years. All have made some courageous decisions during the past few years, he said.
"Consider where we were a little more than three years ago," Keegan said. "We didn´t have much in the way of new products. Our relationships with our customers were at what I would call an all-time low. We were in an extremely tenuous financial position. And we did not have the respect of our competitors.
"That is not where we are today. We are a much different and better company in every regard, and continue to make even more progress."
That´s one of the reasons Goodyear´s decision to cut back on its private brand business and focus on higher-end products is important, Keegan said.
"We strongly believe that tires are not a commodity," he said. "Three years ago, we assessed the core economics of our business, invested significantly where we saw value creation and significantly reduced costs where little or no value creation was identified."
Taking it in stride
Industry analysts, who seem to have a love-hate relationship with Goodyear, didn´t seem overly discouraged by the news of sliding profits in the second quarter, noting that restructuring and rationalization charges pushed earnings down. Net income would likely have come in at about $65 million in the quarter without the charges.
Those charges, however, have become fairly commonplace when the firm releases its results each quarter. In fact, Merrill Lynch´s Murphy of Merrill Lynch in his research report said, "Given the ongoing nature of Goodyear´s rationalization, associated charges may be viewed more as operating items as opposed to one-timers."
Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Mich., said Keegan´s turnaround plan seems to be working. Streamlining of plants and cutting private branded tires are good ideas, as is selling off non-core businesses, he said. Presently, Virag gives Keegan a B+ "or maybe even an A-" for the direction he´s provided.
Analyst Jonathon Steinmetz of Morgan Stanley & Co. Inc. remains cautious about Goodyear. In his research report issued Aug. 7, he gave the company an equal-weight rating, principally because it "had a mixed quarter with structural headwinds to revenue and margin offsetting some progress with cost reduction. (It) continued to grapple with volume problems, especially in North America."
He said Goodyear´s quarterly results demonstrated that the firm had solid earnings potential in small markets such as Latin America, Eastern Europe and Asia, but it continues to show market deterioration in its two largest markets, North America and Western Europe.
The fact that Goodyear is undertaking the turnaround effort at a time when the industry is under heavy outside pressures concerns Keegan, but he believes the problems can be overcome.
"Our people do not use them as excuses," he said. "We embrace them as opportunities and attack them with the same capability, passion, confidence and will-to-win that have created today´s business momentum."
He said the tire maker won´t sacrifice long-term strategies for short-term benefits.