AKRON (Dec. 24, 2003) — Few events stood out as Earth-shattering moments in 2003—certainly compared to the past years of massive tire recalls, terrorist attacks and a deep economic decline. But many factors such as consolidation, profitability, public perception of tires and fierce competition continued to bite at the industry's heels during the year.
Perhaps the most prevalent story was the trials and tribulations of Good-year, which launched its turnaround plans for its North American Tire unit amid continued losses and challenging obstacles. In addition, Bridgestone/Firestone lauded its financial comeback from the recall mire though legal issues are ongoing. Continental A.G. also is forecasting the return to profitability of its North American tire unit after challenging times.
The Tire Industry Association (TIA) began working on what could be considered its first major undertaking since the merger of the International Tire & Rubber Association and Tire Association of North America last year. The association's quest is to establish a checkoff program to raise the value of tires and the industry to consumers. But some groups already are cautious at best about TIA's ideas for the concept.
Also, the Specialty Equipment Market Association (SEMA) Show in Las Vegas shared a 21-percent attendance jump with the Automotive Aftermarket Products Expo. But next year there will be one name noticeably absent from the banner event, as the International Tire Expo name will be dropped in favor of a more general performance tire and wheel section sponsored by TIA at what will be called the SEMA Show.
Consolidation continued at somewhat of a hectic pace—at least for one company. TBC Corp. bought 337 outlets for its Tire Kingdom Inc. subsidiary through two separate but huge deals—a $57.5 million buyout of 112 Merchant's Inc. locations and $260 million for 225 of Sears, Roebuck and Co.'s National Tire & Battery (NTB) stores. TBC said it also plans to add as many as 500 Tire Kingdom outlets independent of these acquisitions in three to five years.
“We will continue to be an active consolidator in the years to come,” said Larry Day, president and CEO.
Trucking giants Yellow Corp. and Roadway Corp. announced a $966 million deal to create a combined company with competing brands, with unknown recourse to retreaders. Cooper Tire & Rubber Co. also flexed its performance tire muscles by buying Max-Trac Tire Co. Inc., which does business as Mickey Thompson Performance Tires & Wheels.
For Goodyear, the year had its ups and downs. The Akron-based tire maker reported its largest ever net loss of $1.1 billion for 2002 in April but also announced it had renegotiated some credit facilities, giving the tire maker time to clean house before cash ran out.
Soon after, Goodyear announced an outline of its turnaround plans, which called for cutting $1 billion to $1.5 billion in costs by 2005. The road so far has been rough: Goodyear reported losses in each of the year's three quarters so far—of $163.3 million, $73.6 million and $105.9 million, respectively. Still, company officials say they're on track to reach their goals and have made significant strides in repairing relations with independent dealers.
The tire maker also restated more than five years' worth of earnings—dragging net income for the period down by $84.7 million—because of errors from inter-company billing and implementation of a computerized accounting system. That move has sparked a routine investigation by the Securities and Exchange Commission (SEC) as well as dozens of shareholder lawsuits. Earlier this month Goodyear also said it would delay filing its amended 2002 10-K to the SEC pending a review of possible improper accounting issues in Europe. This move jeopardizes certain parts of its agreement with the United Steelworkers of America (USWA). At least one analyst also worried about a cash crunch if Goodyear doesn't have access to the capital market.
“In our opinion, there's little doubt Goodyear needs to tap the capital markets soon to be able to run operations effectively,” said Saul Rubin of UBS Investment Research.
To cut costs, Goodyear announced several incremental layoffs as well as plans to close plants and downsize others. By year-end, the tire maker will employ 6,000 fewer workers than at the end of 2002. One significant employee who no longer will be on Goodyear's count is Samir Gibara, who formally stepped down as chairman and was replaced by CEO Robert Keegan.
A ray of light also appeared in September when 13 of 14 locals of the USWA approved a labor contract with Goodyear that had seemed elusive through months of negotiations.
While Bridgestone/Firestone has its own union negotiating troubles—union representatives walked out of talks recently—the Nashville, Tenn.-based tire maker has rebounded strongly from its recall days. In March BFS parent Bridgestone Corp. in Tokyo reported a 161-percent jump in 2002 net income and forecasted a 50-plus percent gain for 2003's net income. Earnings at Bridgestone Americas Holding Inc. were back in the black as well on strong increases for the Bridgestone brand and a stabilization of the Firestone moniker.
“We are 100 percent behind the Firestone brand,” John Lampe, BFS chairman, CEO and president, told dealers at BFS's retail dealer meeting in November. “It's not coming back, it's already back.”
But if the financial woes from the recalls are moving behind the company, the legal issues continue. The tire maker agreed to a $35 million settlement for a nationwide class-action lawsuit in August. In the agreement, BFS would pay $15.5 million for a three-year consumer education campaign, about $2,500 each for 45 plaintiffs and up to $19 million for attorneys' fees. BFS also agreed to manufacture some light truck tires with cap strips, nylon strips or comparable technology for the next seven years.
“(The settlement) reflects a victory for consumers in that it creates a situation in which Firestone will make some design changes in the way they make their tires,” a plaintiffs' attorney told Tire Business. However, just this month an Alabama judge dismissed a case against BFS involving Firestone Steeltex tires because of insufficient evidence.
Meanwhile, Continental A.G. raised its earnings forecast for the fiscal year based on volume gains in the third quarter. The company projected earnings 7 percent ahead of 2002, and it reduced its net debt by $916 million. Earlier in the year, Ulrich Wellen left his post as president after one year. Martien de Louw was named president and CEO in his place.
Independent dealers face some challenges of their own. Midas Inc. announced plans for its 1,900 North American stores to become authorized Bridgestone/Firestone outlets, although the tire maker plans to impose safeguards to limit their direct competition with independent dealers.
Pep Boys—Manny, Moe & Jack also discussed plans to offer name brand tires at its 595 stores in a bid to increase repeat service work. The company did not disclose when this could appear nationally or what brands would be involved, but stores in Denver and Houston sold Goodyear, Dunlop, BFGoodrich and Michelin tires as a test program.
“This is a huge opportunity for us,” said George Babich, president and CFO. “We're going to pull forward and establish earlier the relationships in the post-warranty market by offering branded tires and playing in that 80-percent of the market where (branded) tires are demanded by consumers.”
Meanwhile, car dealerships continued to expand efforts to become tire dealers as well. Following in the footsteps of Ford Motor Co., General Motors Corp. and others, DaimlerChrysler Motors Co. L.L.C. debuted what it dubbed “Mopar T.I.R.E. Works,” a tire supply program for Chrysler Group vehicle dealers.
This year TIA began pushing its idea of checkoff legislation as a way of raising money to fund an industrywide public relations campaign targeted at raising the perception of tires and the industry. The proposed program, which would have to be approved by Congress, would authorize dealers to collect a fee on all tire sales. A committee would manage the collected funds.
While association officials—along with officials from the Rubber Manufacturers Association (RMA)—still are working out details about how the program might work, some dealers and state associations already oppose the measure.
“Historically, we've seen taxes get misdirected and used in places other than where they're supposed to be used,” said Dane Dees, president of the Texas Tire Dealers Association, which wrote a letter of protest to the RMA. “…I don't think it will raise the public's view of the tire industry.”
While the checkoff program is still in incubation, TIA this year launched the first phase of its Web-based passenger and light truck tire training program, which it's calling Basic Automotive Tire Service (ATS). The program is the next step following the commercial tire service (CTS) training program.