Goodyear's latest tire price increase-4 to 5 percent on aftermarket consumer tires effective Dec. 1-is predicated on rising raw material prices, but company executives also are evaluating the price levels of the firm's various product ranges to ensure they are properly placed against the competition.
``We've taken a fresh look at where our products compete,'' Goodyear President Bob Keegan told analysts in an Oct. 31 conference call, ``and we have `right-priced' our products for the (appropriate) market segment. That may mean higher prices on some products and lower prices on others. We will be competitively positioned.''
The pricing evaluation ties into Goodyear's desire to ``sell more tires profitably by increasing productivity within our existing dealer channels,'' Mr. Keegan said.
``We have more touch points... (points of sale) than our competitors, and we'll be able to leverage our position to drive more volume,'' he added.
Goodyear also is developing a distribution strategy ``to expand into new markets, which we don't adequately serve today,'' Mr. Keegan said. ``We've identified by brand and territory exactly where we want to expand and the volume and profit potential from these expansions.''
Mr. Keegan also said Goodyear ``has made significant progress in mending our relationships'' with its major distributors who scaled back their purchases of Goodyear products earlier this year to protest new pricing policies. He said these wholesalers' purchases are back to about 75 percent of their 2001 levels.
Recognizing that most of the marketplace is made up of ``broad market'' tires, Goodyear is working to reduce the break-even point for these lower-priced products, Mr. Keegan said.
This plan includes taking greater advantage of lower cost manufacturing facilities overseas.
In addition, Goodyear plans to launch 20 new product lines globally over the next 12 months, including a ``significant portion'' of them in North America.
In addition to revising its aftermarket strategy, Goodyear is studying ways to deal with variables that will complicate its efforts to improve its earnings in the coming years. Foremost among these variables are rising raw materials prices, the need to shore up its pension funds and uncertainties presented by labor contract talks in 2003, company executives acknowledged recently.
In a conference call with investment analysts, Goodyear executives declined to offer specifics on the company's outlook for the remainder of 2002 or for 2003, citing some of these variables for the vagueness.
In particular, Goodyear expects the cost of raw materials to be up next year 5 to 7 percent over what it's paying this year, and depending on how its stock performs in the coming year, it could be faced with having to provide up to $550 million in funding by mid-2004 for its pension fund. The unfunded portion could reach $2 billion by year-end-about double what it was a year ago.
The pension fund problem, in particular, appears to be worrying investors. The company's stock price fell 71 cents to $8.11 in heavy trading on Oct. 30, the day Goodyear released its third-quarter financial results.
Goodyear is confident it will be able to offset the pension funding obligations and any increased labor costs through productivity increases, according to CEO Sam Gibara.
As for raw material costs, he said the tire maker would have to resort to price hikes to compensate.