One way a subsidiary can step out of its parent company's shadow is by outselling the major brand in the marketplace. Kelly-Springfield Tire Co. has been doing just that.
The tire maker has gained aftermarket penetration faster than the Goodyear brand for three to four years, say industry observers.
``Kelly-Springfield used to be the ugly duckling, kind of on a second tier,'' said Scott Soffen, a securities analyst with Lehman Brothers Inc. ``Now Kelly is more a driver of growth than the Goodyear-branded segment.''
Kelly-Springfield was the most profitable tire company in North America last year-with Cooper Tire & Rubber Co. and Goodyear in second and third, respectively, said Lee N. Fiedler, president and CEO of the Cumberland, Md.-based subsidiary.
In 1993, the tire maker reported more than $120 million in profits on about $1.4 billion in sales-more than an 8.6-percent earnings-to-sales ratio.
``The statement has been made by people at Goodyear that Kelly-Springfield is more profitable and has been for a few years than the Goodyear label,'' said analyst Harry Millis of Cleveland-based Fundamental Research Inc.
Kelly-Springfield, with its Kelly, associate and private brands, has had a greater share of the replacement market than the Goodyear label for more than 20 years. That's partially caused by a shift in consumer preference toward lower-priced tires-a trend likely to continue, Mr. Millis said.
``A lot of pundits see the '90s as `The Decade of Value-oriented Consumers,' '' he said. ``Up until recently, almost all of Goodyear's growth as a total corporation was coming from Kelly in the replacement market.''
Goodyear and Kelly have an extremely symbiotic relationship, according to industry analyst Donald DeScenza of DeScenza & Co. Inc.
Kelly contributes huge amounts of profits to Goodyear to absorb the costs that make the Goodyear brand so effective, he said.
``If Goodyear's sales were confined to the Goodyear brand alone, such heavy R&D spending would be impossible,'' Mr. DeScenza said. ``Nor would Goodyear be in a position to promote its corporate image'' and name worldwide.
``Kelly-Springfield is a full-fledged, highly regarded member of the Goodyear family, a brother of the Goodyear brand,'' he said. ``A brother of near-equal size and formidableness, but not having quite as much prestige.''
In many ways, Kelly is a corporation run autonomously. But much of its capital spending and research and development come from Goodyear, Mr. Millis said. ``I'm sure (Kelly) would have trouble financing itself without Goodyear,'' he said. ``Expanding capacity and upgrading facilities would exceed internal revenue, not to mention R&D costs.''
To some analysts, Kelly-Springfield is just another marketing platform of Goodyear.
``It's not a new concept,'' said Marvin Behm, a Duff & Phelps Inc. analyst. ``Procter and Gamble (Co.) have their Tide, yet also make Cheer, Gain and Oxydol'' to reach different market segments.
Gary McManus, an analyst with Kemper Securities Inc., agrees.
``Kelly makes Goodyear less vulnerable to shifts in distribution and name brand vs. private label. Kelly's role changes depending on the amount of house brand vs. private label business.''
There's a longstanding industry joke that it still would be an extremely competitive industry if the only two tire makers that remained were Goodyear and Kelly.
Although Goodyear tries to avoid any cannibalism by having different marketing strategies and distribution channels for its Kelly and Goodyear labels, there is overlapping at the margin. The lower end of Goodyear's line and the upper end of Kelly's overlap, which represents about 30 percent of the replacement market.
The real competition between the two is more often for capacity than sales, Mr. Millis said.
Approximately 20 percent of Kelly-Springfield's tires are produced at Goodyear plants worldwide. Capacity problems arise when both firms simultaneously gain market share.
In the last such occurrence, in 1989, Goodyear required Kelly-Springfield to make Goodyear-brand tires because it couldn't keep up with demand. As a result, Kelly-Springfield couldn't fill all of its customers' orders for a couple of months, he said.
``This hurt Kelly's sales, and I'm sure it strained a few relationships between Kelly and its customers-if it didn't break any.''
With both firms currently picking up market share, the corporation could soon outsell capacity. ``Another 15 percent increase in (original equipment) demand and the situation could happen again in '94,'' Mr. Millis warned.
Capacity dilemmas such as this can also test the firm's relationship with its parent company.
Historically, there has been some friction in Goodyear's internal operation between the Goodyear brand and Kelly people because of this, Mr. McManus said.
But most analysts said Goodyear's management will ensure the two firms continue to complement, rather than compete against, each other.
The key to Kelly's solid relationship with Goodyear has been the fact that the two firms now have distinctly different missions, industry observers said.
Mr. Fiedler remembers a time when the two firms weren't in sync. A couple years ago ``we had a lot of trouble getting money from Goodyear,'' he said. ``But that's not the case now, because Goodyear understands and supports us.''
Said Frank James, vice president of Kelly's associate brands division: ``Instead of competing, we complement each other, just like (Kelly's) three divisions do.''