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Goodyear: Europe key for financial success

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DETROIT—Goodyear is looking to the European market—especially the aftermarket—as a key component in its financial success.

The Akron-based tire maker made that assessment during its presentation at the 2013 Deutsche Bank Global Auto Industry Conference in Detroit on Jan. 15, which it also webcast.

Darren Wells, executive vice president and CFO for Goodyear, said the tire maker has executed a turnaround over the last eight years, improving consistently with the exception of the 2008/2009 financial crisis.

“I think the fundamental years, 2011 and 2012, particularly in 2012, through a pretty tough economic environment, we've actually delivered very consistent performance,” he said.

“While the volume environment isn't exactly where we'd like it to be, ultimately there's some good news there because if we're able to deliver good results, consistent results, through what had been clearly tough volumes in a lot of markets, it provides us with some up side as the markets recover.”

Mr. Wells said that although the company's North American business proved to be the most challenging area to improve, it is expected to exceed targeted earnings one year ahead of plans.

“We had a goal for North America that for a long time was to get to 5 percent return on sales. Two years ago we announced the target that by 2013 we wanted to get to $450 million of operating earnings.... We're going to get to that target in 2012, rather than 2013, and we feel great about that. And that's in a pretty soft tire market in North America,” Mr. Wells said.

However, the European market, especially the European aftermarket, has been a tough environment and Goodyear aims for improvement there.

“We continue to struggle there.... For us to get to our financial goals, it's clear that we've got to see some recovery in our European business. And part of that may be volume, but part of that may be things we can do to improve the business there,” Mr. Wells said.

The industry environment remained very weak in the fourth quarter, he said, crediting part of this to the mild winter weather, although it has been slightly colder than winter 2011. Goodyear said improvement in EMEA (Europe, Middle East, Africa) results, especially volume, will be critical for achieving its 2013 segment operating income target.

“Clearly, dealers in Europe have had soft volumes,” Mr. Wells said. “But 2013 is a new year. It gives us an opportunity to start again. And that's really where we're focused.”

The company's strategy is on a strong start to the 2013 summer season, Mr. Wells said, including its product lineup with strong label scores. This summer season will be the first on which the newly placed European tire labeling law will have an impact, and Mr. Wells said Goodyear is feeling pretty good about its label scores.

“...That label gives a standard test performance on rolling resistance, wet braking and noise for a tire,” he said. “Those criteria don't mean as much in the winter tire market because people are not necessarily looking for rolling resistance and wet traction in a winter tire. They want snow and ice performance, so while the labels may have been there for the winter season for consumers, when the summer season rolls around, that's where the label really is going to be critical.

“And so...the next few months will be the first time...they'll have the full benefit of the tires being labeled with the standard label.”

He also said the company has an improved service and value proposition, so success in the first quarter is critical. Cost competiveness also remains an issue, especially because of the low volumes.

Mr. Wells also noted that key balance sheet issues include the company's unfunded pension obligation, which was funded once already, but grew again because of the historically low interest rates. Goodyear said union associates hired since 2006 receive a 401(k).
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