AKRON—It's the billion-dollar question: When will tire plants open again, perhaps signaling the return of business as usual?
For Goodyear, the answer centers on its original equipment vehicle customers. All but a handful of vehicle assembly plants in the U.S. and Europe are idled in the wake of the COVID-19 pandemic.
When some of the major auto makers resume production—many of them, including Fiat Chrysler Automobiles, Honda Motor Corp. and Toyota Motor Corp., are targeting the first week of May—Goodyear will begin to ramp up production at its idled factories.
"Ideally in early May, if we're optimists, we'll see some production line up, and that will be a good sign," Richard Kramer, Goodyear chairman, CEO and president, said in an exclusive interview with Tire Business.
"It won't happen on May 1, but as it ramps up and the supply chain for us and for the auto suppliers comes into place, you could see us getting back to some more activity, which ultimately is needed."
The Akron-based tire maker said April 2 that all of its tire and retread manufacturing plants in North America, Europe, the Middle East and Africa regions were going to remain idled "until further notice" in the wake of the COVID-19 pandemic.
Goodyear's commercial tire service business, like other commercial dealerships, is considered an "essential" business by the federal government, so its truck-care network is open to support the trucking industry as it delivers critical goods across North America.
"We'll follow the demand signal that the OEMs give us and that the markets at large give us," Kramer said.
However, he cautioned that when that time finally arrives, and manufacturing around the world resumes, society will have to make "trade-offs" for the betterment of the economy.
"We can't stay sheltered forever," Kramer said. "I believe we should be sheltered now, so don't misunderstand me. But we can't do it forever. At some point down the road, we are going to have to make trade-offs on how we deal with this to get the economy back up and running."
Supply remains strong
Supply doesn't seem to be an issue, at least in the short term, particularly with commercial tires, which services an "essential" industry.
"We're selling tries to keep trucks moving, keep medicine moving, keep food moving, keep America rolling, as we say," Kramer said. "That is the priority for us, so we'll see where the inventories are and the demand signals are to see when we open for that as well."
Kramer joined Goodyear in 2000 as vice president of corporate finance—just before the 9/11 terrorist attacks sent the world markets crashing. After a stint as vice president of finance for North America, he was named president of Goodyear North America in 2007—just in time to experience the downturn of the Great Recession.
Kramer said this pandemic, however, is unlike anything he's witnessed previously or that the company has endured in its 122-year history. In fact, he called it "not just unprecedented, but unprecedented in the speed and veracity in which it has spread."
That's what makes it so different, he said.
"Add to that a lack of clarity around it, in terms of depth and duration of what COVID has done and continues to do, (that) adds to the disruption that we are all having to deal with."
The "demand shock," as he calls it, has hit the tire industry where it hurts most: Its bottom line.
According to Kramer, analysts predict OE business will fall 20 percent and the replacement business will decrease 15 percent, equal to or worse than numbers during the Great Recession.
"As we see this situation, our philosophy has been essentially to embrace it," he said. "We don't like the news, but our philosophy has been to get on it, stare essentially in the face of this uncertainty, accept what is coming at us, understand that we have to make decisions with imperfect information, but ultimately act fast."
Goodyear, like all other tire manufacturers, is facing what Kramer called a "cash usage" problem. Tire makers build inventory in the first half of the year in order to meet peak summer demand.
Now, Kramer said Goodyear is paying for raw materials it purchased to build that inventory—at a time when sales in the replacement market have stalled significantly.
"So the direct impact to us is, essentially, (there is) no demand, while we still have bills due for raw materials that we purchased to make tires that we assumed we would sell by now," Kramer said.
Goodyear has initiated several steps to manage the shortfall, including idling its plants and cutting capital, discretionary and marketing expenses in the U.S., Europe, Latin America and Asia.
In addition, Goodyear has instituted:
- Pay cuts/deferrals for associates who continue to work full time with no furlough, including Kramer, who is taking a 50 percent pay cut;
- Three weeks of furlough for full-time associates, with pay cut/deferral for the remaining weeks of the quarter; and
- Furloughs through the end of the second quarter.
These measures affect 4,100 associates in the U.S., all targeted for the second quarter.
Goodyear believes that the majority of associates will receive two-thirds of their pay through their income and unemployment and/or federal assistance while they remain on furlough.
"Our goal is to see everyone through the next three months with shared sacrifice," he said, "and hopefully that is where this ends, and we get directionally back to some normal business and normal production."
Kramer said Goodyear was one of the first companies to institute a work-from-home directive, affecting thousands across the globe. And he heaped praise on how his employees are embracing the shared sacrifice to help the company and its customers.
"The team spirit, the resilience, the agility, the dedication to Goodyear, the dedication to each other, the dedication to our customers is frankly humbling for me as the CEO of the company," he said. "It's beyond what I could have ever imagined."
He recounted a story of how one Goodyear employee in Spain—where more than 15,000 have died from the virus—lauded the company for helping to keep him and his family safe. And while quarantined, employees there are working diligently to connect fleets with open capacity to fleets with excess capacity in order to make the supply chain flow.
Kramer said the employee told him, "We have to do this. We can't fail because they're counting on us. Spain is counting on us, and our fleets are counting on us to get this done."
Work from home
Working remotely has not impacted projects the company considers "vital" or "essential," such as the intelligent tire concept or its consumer fleet-mobility platform AndGo.
Kramer said Goodyear has suspended projects such as a size expansion or a store opening, endeavors "we don't consider essential or vital at the moment. We expect to continue making those decisions, and they're certainly not ones that would affect the mid- to long-term of what we are doing as a company."
As in-store traffic has slowed significantly, the company has shifted its focus to its mobile programs, Kramer said. Consumers can order and pay for tires online and set up an appointment for a technician to come to his or her home and install tires without touching the inside of the vehicle.
"We can put the tires on in their driveway and move on, and they don't have to leave the comforts of their shelter or homes," he said. "That's been working very good."
Company stores, he said, adhere to strict social distancing measures and offer a no-touch environment for customers to get their car serviced in a sanitized environment.
"We're getting very creative with online, and we're getting very creative with in-store service," he said, "but certainly with less volume at the moment."
He suggested these days of quarantine will help educate both consumers and tire dealers about the benefits and efficiency of e-commerce.
"Our view is we have to turn up the way consumers want to shop," he said. "If they want to come to the store, we'll be there. If they want us to come to them, we'll be there. If they want us to pick their car up and take care of it, we'll be there. Those are the ways we're building business to reflect the ways of changing expectations and behaviors of consumers.
"This is something that is going to resonate beyond the period of the coronavirus. That's a good thing."
Still, he said he believes independent tire dealers can—and will—survive. History, he said, as well as experience and perseverance, are on their side.
"When you look up the definition of the term 'resilience' in the dictionary, what you're going to find is the term tire dealer," Kramer said. "These businesses know how to carry on."
"Call me an optimist: I know these are tough times for dealers out there today, but I have tremendous confidence that they know how to do this, that they're going to work their way through, and they're going to be even more successful on the other side of this."
Kramer advised tire dealers to keep three things in mind: Stay safe and healthy; remember the vital role they play in keeping America moving; and focus on that resiliency.
He reminded dealers that pandemics do end. Every day in quarantine is a day closer to it ending.
As testing becomes more available, as federal stimulus money gets distributed, and as drug companies close in on a cure or vaccine, the curve is flattening.
"Goodyear is going to be there for (dealers)," Kramer said. "We're open for business today; we're going to open for business tomorrow. We play for the long term with our aligned partners, and we're going to be there and support them. Have optimism. ... Better days are ahead."