AKRON (July 20, 2004) — As Goodyear North American Tire goes, so goes Goodyear.
It's an oversimplification of the company's overall problems, but the primary business unit of the tire maker hasn't done well the last few years and, principally because of that, neither has Goodyear. During that time, five of the firm's six other divisions have become profitable.
But things are changing at North American Tire (NAT), and Jon D. Rich is leading the charge. While the division hasn't turned the corner yet, he promises it won't be long before it does.
Why? Because of new products, increased demand created by better economic conditions, as well as the firm's cost reduction program, which has led to more efficiency.
However, it goes deeper than that, the president of the division said in his office at Goodyear's headquarters in Akron. Greater innovation and quality, better marketing, improved brand strength, better relations with dealers and other initiatives have resulted in steady improvement within the division, he said.
“Overall, I'm pleased with the progress we've made so far,” Mr. Rich said. “Investors will see progress quarter by quarter. We made significant improvement in the first quarter and we'll continue to build on that in the second period.”
While the North American segment posted a $31.7 million operating loss during the first three months of 2004, that's an improvement from a $66.5 million loss registered in 2003's first period. Sales for the quarter rose 12 percent to $1.76 billion—caused partly by favorable pricing and product mix, primarily in the consumer replacement market—and strong volume in the commercial original equipment market.
It has been a bumpy ride for Mr. Rich since he became the top executive of NAT in December 2002 after a stint as president of Goodyear's chemical division, where he led the unit's turnaround by restructuring the operation and expanding it into high-growth markets.
When he took over, NAT's sales and operating income were down for both the fourth quarter and the year, and the division was considered the primary reason Goodyear was losing billions of dollars.
Cutbacks, layoffs and plant closings were common and continued through 2003 as the company moved to trim between $1 billion and $1.5 billion in costs and gain 2 percentage points of market share in North America and 1 point globally by the end of 2005.
The successful chemical division was on the selling block. Investors and analysts were nervous.
In February 2003, Mr. Rich unveiled a four-point plan to stabilize the division by cutting costs, simplifying its overall structure, creating greater efficiency and improving its sales structure.
He set in place a program to double the number of tires Goodyear imports to about 10 million annually and update or close North American factories that weren't competitive. Thousands of workers eventually were laid off.
But even as he put each initiative in place, Mr. Rich realized an impact tire was needed, and he knew there were few new products in the pipeline. Goodyear needed “a great new product ready to unveil at the 2004 dealer conference, about 13 months away. Ordinarily, it would take almost twice that long to go from concept to product,” he said.
Enter the Assurance
NAT got what it needed and more with the development of the new all-season Assurance tire line, aimed at the mid-level and luxury passenger tire segments. Amidst much fanfare, the line was launched at Goodyear's February dealer meeting and caught on quickly with the public.
It has continued to sell well—the firm called Assurance its most successful tire launch ever, even better than the Aquatred—and initial production at one plant has spread to four: Lawton, Okla.; Napanee, Ontario; Tyler, Texas; and Gadsden, Ala.
The line consists of two tires, one featuring ComforTred technology aimed at the premium tire market and the other with TripleTred technology for all-season conditions.
Demand for Assurance “is more than three times our initial expectation,” Chairman and CEO Robert J. Keegan told analysts recently.
Goodyear is counting on the Assurance line to become for passenger cars what the Eagle line is for performance, Fortura for sport-utility vehicles and Wrangler for light trucks, company executives said at the product's launch.
The new line is selling at three times the rate of the much-heralded Aquatred, which came out in 1992 and was Goodyear's top-selling tire for a long period of time, Mr. Rich said. Goodyear is considering increasing production of the line and perhaps making it at other plants to keep up with demand and wants to add more sizes.
The company also introduced the Eagle GT-HR performance tire and the G395 steer tire, a commercial truck product, during that critical 13-month period. Mr. Rich said both have been successful.
In fact, Goodyear hired back several hundred workers so far this year to handle growing manufacturing needs.
Mr. Rich said the company also is on course with the development of run-flat tires, using its Impact technology, and, “I think it will be a significant piece of business.”
Staying the course
Meanwhile, NAT is sticking to its plan to remain efficient and follow its lean Six Sigma initiative.
More belt-tightening probably is ahead, although the company has no cutback plans at the moment, Mr. Rich said. “We must be careful how we spend our money. When we find areas where we can save money, we will.”
The firm continuously is improving its tire factories, he said, making them more efficient and productive.
North American Tire trimmed some private label lines that were losing money but beefed up others that have been successful, he said. The bottom line is the firm has grown with some private label customers, “which has had an impact on earnings. There's no lack of commitment on the private label side,” Mr. Rich said.
“Overall we're down (in the private brand segment) but only in areas where we planned to be down because they were areas where we were losing money,” according to Mr. Rich. “We're trying to grow our brand business. We're trying to make a profit. And I'm not embarrassed about that.”
Goodyear likely will increase tire production overseas, where it currently makes about 10 percent of its tires for the U.S. market, while it continues to boost manufacturing in the U.S.
“I think they're making a lot of the right moves,” said Dennis Virag, managing director of Automotive Consulting Group Inc. in Ann Arbor, Mich. “It's a longer term endeavor. I know Goodyear is closing some plants that are unprofitable and investing in some that show more promise. Now it's a matter of continuing the process. They can't take their eye off the target. And once they get there, they can't let up or things could reverse themselves.”
One stumbling block to growth for all tire makers has been rising natural rubber (NR) prices, which have more than doubled during the last year.
Goodyear tried to absorb NR, raw material and energy increases but ultimately had to boost its products' prices. “We still haven't recovered all of the increases,” Mr. Rich said. “I'm disappointed natural rubber prices haven't come back.”
The moves Mr. Rich has made so far tie in with Mr. Keegan's growth program, unveiled in April 2003. Mr. Keegan focused on seven key factors—topped by strong leadership—that would lead to Goodyear's turnaround. Of those, four probably affect NAT's progress the most, according to Mr. Rich:
* Leadership—“We've put a great team together, they've been together for a while and now have the chance to really lead.” He cited Larry Mason, president of consumer tires; Jack Winterton, Mr. Mason's right-hand man; Steve McClellan, vice president of commercial tires and overseer of the firm's truck business; and Chuck Mick, vice president of off-highway, who handles farm, race, aviation and off-the-road products.
* Cost control—“Lots of tough business decisions were made to remove significant costs from the company,” Mr. Rich said. “While the toughest part of the process is over, we constantly look to eliminate costs that do not add value.”
* Product leadership—Assurance is just one piece of the turnaround thus far. Its success has been beyond the firm's expectations. “And we're attacking the next new products with optimism that carries over from Assurance,” he said.
* Distribution—“Nobody is more important than our independent dealers. (Our) relationship with that huge distribution network needed to be improved, and we have a better relationship now than we've had in years. We had to help them grow their businesses.”
“At the end of the day,” Mr. Rich continued, “the person behind the counter has got to have confidence in your product…has got to want to sell it because it is good for his or her business. It's our responsibility to give them a reason to sell Goodyear and make sure they have the support and resources to do so.”