Goodyear is on page 1 of a choose-your-own-adventure book.
On April 30, company executives outlined their goals for fixing the North American Tire unit, but one analyst said the officials gave few details for how the turnaround actually will happen, leaving the course of the plan-and its outcome-unclear.
``North American Tire is not competitive today, losses are mounting and competitors are beating on a high-cost operating structure at a time when industry conditions are rather sour,'' said Saul Rubin, an analyst at UBS Warburg in New York. ``Goodyear's conference call (April 30) was geared at answering just how it plans on reversing that trend in North America. We remain unconvinced the story will play out as told.''
But some dealers are staying optimistic that the tire maker will again return to profitability.
``We feel that a healthy Goodyear is something that's absolutely critical,'' said Carl Kazen, president of New England Tire in Attleboro, Mass., and a member of the executive board of Goodyear's Gemini dealers. ``A healthy Goodyear means we have healthy dealers.''
Still, other dealers have their doubts. At the annual shareholder meeting May 7 in Akron, Alexander Sussman, 70, a shareholder and resident of Medina, Ohio, spoke up and said a Goodyear dealer in Memphis, Tenn., expressed his lack of faith in the company's turnaround. As he fixed a Goodyear tire on Mr. Sussman's vehicle, he said, the dealer claimed the tire maker would likely end up in Chapter 11 bankruptcy.
``This is coming from your dealers,'' Mr. Sussman told Goodyear executives and board members.
Chairman Samir Gibara, who is stepping down June 30, said the bankruptcy claim had no foundation.
``Either they believe in Goodyear or they don't,'' he said. Other company executives, including North American Tire President Jon Rich, said the company remains committed to dealers and is improving relations.
While analyst Mr. Rubin didn't rule out a turnaround, he said each choice Goodyear makes in the coming months and years will be critical. On May 1, he slashed his earnings estimate for the year to a loss of $150 million, or 87 cents per share, from a loss of $35 million, or 22 cents.
``We see flawless and timely execution as absolutely vital-a slip-up, and questions of corporate viability will come quickly to the forefront,'' he said.
Mr. Kazen said many dealers have expressed concern about some points along the turnaround path even if they expect a successful ending. For example, he is concerned about the lack of a product stockpile in case of a strike by the United Steelworkers of America as well as Goodyear's intention to increase business with large regional retailers, which many times are prime competitors to independent dealers.
``We're very concerned about what's going to happen with (the union talks), but we feel very strongly that Goodyear is headed in the right direction,'' Mr. Kazen said. ``No question about that.''
Goodyear officials have said they consider each of the types of retailers as niche retailers instead of pure competitors. But Mr. Kazen said if, for example, he sells to 23 out of 100 customers before a regional retailer moves in, his numbers will drop to about 12 out of 100 with the increased competition.
``I don't think we're going to share the 23,'' he said. ``That's my concern.''
Jay Huff, president of Brooks-Huff Tire and Auto Center in Hunt Valley, Md., was one of eight Gemini dealers who expressed concern earlier this year over Goodyear's decision to distribute through a regional retailer in Baltimore. He said they have resorted to promoting the Gemini brand over Goodyear to distinguish themselves from the regional retailer, which has stores within a half mile of two of Mr. Huff's outlets.
``We're there, and all (Goodyear is) doing is going right on through us,'' he said.
Joe Flynn, president of Flynn's Tire Co. in Mercer, Pa., said he has confidence in the tire maker's leadership team-specifically CEO and President Robert Keegan, Mr. Rich and Jack Winterton, director of dealer sales/consumer tires. Mr. Flynn said he already has seen those executives address concerns from independent dealers.
``They're firing on all eight cylinders,'' he said. ``In Goodyear, that's something they didn't have in the past.''
An ambitious-though entirely necessary-goal of Goodyear's turnaround, Mr. Rubin said, is the plan to cut $1 billion to $1.5 billion in costs by 2005. The savings goal is 8-13 percent of tire revenues over the three years of the turnaround, he said. ``It is difficult for us to see where it will come from,'' he said.
Company officials said the cost-cutting figure includes the effect of restructuring costs.
Mr. Rubin predicts the company can save about $250 million by importing low-cost tires from Latin America. Company officials did not provide figures for potential plant closings or layoffs because of the ongoing labor talks.
Mr. Kazen said many dealers also are wary about cost cuts, especially if it means more outsourcing on the supply side, which would make things more difficult for dealers.
And Mr. Rubin is skeptical of Goodyear's ability to raise revenue per tire and market share simultaneously.
``This is, of course, the nirvana that all companies attempt to reach,'' he said. ``We do not see how it is possible, at least under the current operating structure and industry conditions.''
Among those conditions are competition from low-cost imports and strong opposition from unsympathetic rivals Bridgestone/Firestone and Michelin North America Inc. Mr. Rubin doubts Goodyear will be able to invest the time and money needed to exploit its distribution system and strengthen its core brands of Goodyear and Dunlop.
But company officials said they are planning to spend more on marketing and advertising-and cash will be freed from other areas.
``We're spending too much today based on habit as opposed to where we can really add value,'' Mr. Keegan said.
Mr. Kazen said the renewed focus on strengthening the core brands is critical. He said the proliferation of marketing-pushing brands like Dunlop and product lines like Wrangler-confuses customers to the point that they can't distinguish Firestones from Goodyears.
``We need to differentiate Goodyear as the product to buy,'' he said.
Even as the tire maker braces for tough decisions and hard times, Mr. Kazen, who has been a Goodyear dealer for 15 years, said he also is ready to stick it out.
``I feel strongly that they're going to do it, no matter what it takes,'' he said. ``We're all behind Goodyear.''