Goodyear to boost capacity at multiple facilities

BOSTON—Goodyear is budgeting nearly $800 million through 2019 to boost production capacity for high-value-added tires in a bid to stay ahead of the demand curve for such tires.

Officials at the Akron-headquartered company disclosed the expansion projects—slated at plants in the U.S., Mexico, South Africa, China and India—during a briefing with financial analysts in Boston Sept. 15.

Goodyear's top executives also unveiled a growth and capital allocation plan that targets $3 billion in operating income by 2020 and between $4.3 billion and $4.9 billion in free cash flow through 2020. The firm's operating income goal is up from $2.1 billion in 2016.

It expects to have $7 billion to $7.4 billion available for capital allocation during the 2017-20 fiscal year periods.

Of that, the firm is budgeting $1.8 billion to $1.9 billion for capital expenditures targeted for capacity expansions, $700 million to $800 million for restructurings, $3.5 billion to $4 billion for dividends and share repurchases, and $800 million to $900 million for debt repayment.

The tire industry is healthy and growing with opportunities to grow further, according to Richard J. Kramer, chairman, CEO and president.

Goodyear's strategy is built to take advantage of key industry drivers, he said, including the transition to complex, large rim diameter tires and “influence of empowered consumers in all aspects of the tire buying process.”

Not mentioned in the firm's presentation was the prospect of investments of up to $184 million in its light and medium truck and earthmover tire plant in Topeka, Kan.

Goodyear acknowledged in mid-September it is considering investing in its Topeka truck and earthmover tire factory, but declined to discuss specifics.

The prospect came to light after the Topeka Joint Economic Development Organization published the agenda for its Sept. 14 meeting, which included discussion of an agreement offering up to $368,000 in investment incentives for an unnamed company in return for agreeing to invest a minimum of $184 million in its Topeka facility. The agreement said new incentives were tied to $250 million in investments the company already had made over several years.

Responding to inquiries from the Topeka Capital-Journal about the proposed incentives, Goodyear acknowledged it was the company referred to and said it is “committed to making strategic investments” in its tire plants to continuously improve operations and efficiency.

“We are currently in discussions with Kansas state and local officials regarding potential future capital investment at our Topeka plant. Until a final agreement is reached, we cannot comment further,” a spokeswoman said in a statement.

Prior to the meeting, however, Goodyear asked JEDO to remove the proposal from the agenda, adding that it was premature to discuss the issue in a public forum.

The JEDO agreement—which referred to the proposal as “Project Mare”—calls for Topeka, via its Growth Organization of Topeka/Shawnee County Inc., to offer $2,000 in incentives per $1 million in investment above and beyond the initial $250 million up to $184 million, which would equate to another $368,000 in incentives.

To garner the additional incentives, the company would have to complete second-phase investments by year-end 2022, the proposal states.

The disclosure of a potential investment at Topeka comes shortly after the U.S. Commerce Department said it will impose antidumping and countervailing duties on truck and bus tires imported from China. Topeka is one of only two Goodyear plants in North America with truck tire capacity; the other is in Danville, Va.

In terms of the firm's investments for high-value-added tires—essentially those with rim diameters of 17 inches and greater—Goodyear projects demand for HVA passenger tires will double worldwide by 2020 to 444 million units. That growth follows a doubling in demand from 2010-15 to 222 million units, said Laura Thompson, executive vice president and chief financial officer.

She also noted the industry margins on 17-inch and larger tires is $16 per tire higher than on tires smaller than 17 inches. Taken together, Goodyear's expansions will result in 20 million units of additional annual capacity for the larger-rim tires, Thompson said.

Specific projects outlined at the briefing include:

•  $125 million through 2018 to add 2 million units of annual capacity at plants in Lawton, Okla., and Fayette-ville, N.C., for original equipment customers. Goodyear declined to provide a breakdown between the two plants;
• $210 million through 2019 to increase capacity at its Pulandian, China, plant by 3 million units a year;
• $115 million to add 1 million units of HVA capacity at its facility in Aurangabad, India;
• $290 million to $300 million through 2019 to install 6 million units of annual capacity at its factory in San Luis Potosi, Mexico; and
• $20 million in 2017 to add 1 million units at the firm's Uitenhage, South Africa, plant, which is part of a $50 million investment disclosed in September 2015.

Goodyear also added 3 million units of annual capacity for the larger-rim tires at plants in Europe in projects wrapping up in 2016.