‘Cut deeper,' analysts tell Goodyear
AKRON (Feb. 3, 2003) — Mid-January work force cuts made by Goodyear are a good beginning—but only that.
More is needed, according to analysts who follow the company, including implementation of a creative strategic plan, better marketing, greater innovation and more streamlining.
The analysts say they are anxious to see what other moves the tire manufacturer will make to improve its bottom line, sales and image when Goodyear officials meet with them in February or March in New York to discuss year-end earnings and the company's future business plan.
Several said the 734 layoffs—700 salaried workers and 34 hourly Akron Technical Center employees—announced Jan. 16 were expected, but the reductions alone won't cure Goodyear's ills.
Goodyear will lop off 350 salaried jobs in Akron, 150 at other North American locations and the Tech Center positions by March 31. Another 200 salaried posts have been eliminated through attrition since the beginning of the fourth quarter of 2002.
“Goodyear, like many other companies, needs to optimize the entire process,” said Dennis Virag, managing director of Ann Arbor, Mich.-based Automotive Consulting Group Inc. “That includes everything: research and development, marketing, sales, lean manufacturing, market positioning.... It needs to do it all.”
The firm is coming off a year that saw its financial results fall into the red, its stock price slump to the single-digit level and its market share erode. Of the latest job cuts, about half are in its North American Tire division with the remainder coming from its corporate operation and support groups. The tire maker said it will save about $75 million in 2003 and $80 million annually because of the cutbacks, for which Goodyear will take a pretax charge of about $75 million.
However, that isn't nearly enough to resolve the firm's financial woes, said Rod Lache, a stock analyst at Deutsche Banc Alex. Brown Inc. in New York. “When we did the math, they need to have 10 times that amount.”
Goodyear is not making much money, isn't generating cash and raw material costs are going up, “so it almost certainly will have to do more,” he said, noting the firm “still has excess capacity and excess costs.”
The company's profitability is not good, he said. It has about $1.1 billion in debt that will be due in 2004, and it will need $350 million to $500 million for its pension fund in 2003.
An aggressive plan of action is needed to turn the tire maker around, he said, because Goodyear is competing against leaner companies. “So it can't count on market share. Cost cutting may be the answer. We don't see a clear path yet, so we'll have to see what happens when they pitch their plan” to Wall Street analysts.
Saul Rubin, an analyst with New York-based UBS Warburg L.L.C., believes cutting 734 positions from a work force of 92,000 is only the beginning. “Goodyear needs to take drastic action,” he said. “They're in trouble operationally, with debts due by next year and pensions due. They could hit a wall without more money coming in.”
However, the company's new plan can't be “just slashing and burning (the work force). That isn't the answer. They have to do much more than that,” he added.
Goodyear still has a lot of opportunity to become leaner on the factory floor and in every other area, Mr. Virag said, as do its suppliers. “It can significantly improve its business performance with the proper programs in place. It's achievable.” Putting together a solid business plan that covers every level of the company is the key, he said.
Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].