Despite starting 2003 with a first quarter loss, Goodyear hopes to turn around its North American Tire (NAT) unit by slashing $1 billion to $1.5 billion in costs and gaining two points of market share by 2005.
The Akron-based tire maker said it also plans to gain one point of market share globally, grow revenue per tire by 4 percent, increase its return on sales to 6 percent and reduce debt during that timeframe.
Company officials outlined the framework of their turnaround plan for the North American Tire unit during a meeting with analysts April 30.
But in the first quarter, Goodyear posted a net loss of $163.3 million compared with a net loss of $63.2 million in the same period in 2002. The deeper loss came despite a 7.1 percent increase in sales to $3.5 billion from $3.3 billion in 2002. Tire unit volume decreased to 52.6 million units from 53.0 million units in 2002.
North American Tire's unit volume was down 5.2 percent, and shipments to original-equipment customers were down 2.7 percent, the company said. Replacement volume also fell 6.4 percent in the quarter. Sales for NAT were $1.6 billion, down from $1.7 billion in 2002, and the unit reported a $61.5 million operating loss.
``While North American Tire continues to struggle, we see room for optimism,'' said Robert Keegan, president and CEO. ``We are aggressively cutting costs to make this business competitive, and we are encouraged by market share gains in this unit compared to the fourth quarter of 2002. We have much work left to do, but our turnaround is on track.''
Among the main initiatives outlined in the analyst meeting, Goodyear said it plans to:
* Reduce its work force and increase capacity utilization among facilities. Because negotiations are continuing with the United Steelworkers of America, officials declined to pinpoint how many jobs or plants could be affected. But Jon Rich, president of North American Tire, said Goodyear could sell an additional 16 million units if its plants were more cost-competitive. Company-wide, Goodyear is operating at about 87 percent of its production capacity.
* Leverage distribution more effectively. This includes maintaining mass merchandisers and independent dealers as well as growing business with warehouse clubs, large regional retailers and auto dealers. ``We think those are channels where we can make headway,'' Mr. Rich said. An important facet of this is simplifying wholesale distribution to make ``one step'' to retail instead of several impediments.
* Be more selective with private brands and OE business. Mr. Keegan said OE contracts will be based on the vehicle's actual brand loyalty, instead of averages among makes, as they had been before. He said the loyalty rates can range from about 20 percent to more than 50 percent. ``There is a high correlation between loyalty and the price you pay for your vehicle,'' he said. Noting its private label sales have been weak, Goodyear plans to place more emphasis on its name brands, primarily Goodyear and Dunlop.
* Reduce SKUs and overlapping products. ``That's all part of getting our company focused on the things where the returns are significant, and we're talking about big changes here,'' Mr. Keegan said, adding Goodyear is willing to cut brands, SKUs, customers and staff for simplicity. He declined to mention specific product lines that may be affected. Goodyear also intends to announce new products that will help spur business.
* Pursue asset sales and reduce debt. Officials said the possible sale of its chemical business is ``progressing.'' But that and the sale of 20.8 million shares Goodyear owned of Sumitomo Rubber Industries Ltd. are only the ``first phase,'' Mr. Keegan said. ``We'll be aggressive here,'' he said. ``We're looking at everything that is non-core and non-strategic for us.''
Engineered Products could be the next unit to go on the chopping block, predicted analyst Saul Rubin of UBS Warburg.
Besides freeing up money to avoid a cash crunch, Goodyear officials said the company must reduce debt to re-enter the capital markets, which would give the tire maker the opportunity to get new or better terms on financing. The company currently has about $3.3 billion in debt plus another $2 billion in pension fund commitments.
* Establish pricing discipline and avoid volume mentality. Mr. Rich said the company will not ``buy'' its market share with lower prices and higher volume. Instead, he said Goodyear will utilize its capacity effectively and reduce costs through the Six Sigma continuous improvement system. Other factors, such as improved fill rates and a better supply chain, also are expected to help. ``Our ultimate goal is that our customer will pay us a premium for doing this,'' Mr. Keegan said.
* Deal with stiff competition from low-cost foreign imports. Mr. Rich said Tier 3 Asian imports are the biggest threat in the truck tire replacement business. ``We have to figure out how to beat them or join them, and we're going to do one of those things or both,'' he said.
Company officials acknowledged many obstacles stand in the way, but they still are optimistic.
``If we do these things and focus on cost, I still believe we can achieve our goals for this year,'' Mr. Rich said.