Goodyear gains flexibility responding to pandemic

AKRON — Goodyear's tire production became more flexible during the coronavirus pandemic, the company's top executives told financial analysts during a July 31 conference call to discuss the firm's second-quarter results.

At the same time, an increase in e-commerce has the company optimistic about recovery.

Goodyear said it believes the second quarter saw the worst of the economic impact from COVID-19 when demand dropped and manufacturing was idled. The company said the tire industry is slowly recovering, but it is entering the second half of the year in a conservative fashion.

Chairman, CEO and President Rich Kramer and CFO Darren Wells talked about some of the company's highs and lows heading into the third quarter during the conference call.

Tire sales fell 41% in the second quarter to $2.14 billion and were off 28% for the first six months of 2020 at $5.2 billion, as the company built 70% fewer tires than a year ago.

"There's no question this was the most severe volume shock we've ever experienced — worse than the Great Recession and worse than the strike-related shutdown we had back in 2006," Mr. Wells said.

Goodyear said during the pandemic it has found a balance between keeping production low while still delivering tires that the customers need and maintaining an inventory volume to react to increase in demand.

"As we got into this kind of difficult environment, obviously, the work that we are doing to improve our manufacturing cost-per-tire is very valuable to us, and anything we can do to make our manufacturing more flexible is going to be important to us," Mr Wells said.

He said it's not just about keeping costs low at full production capacity, "but being able to scale it to any production level."

With extra capacity, he said Goodyear can produce a wider variety of products, which will allow them to build a more robust inventory.

Goodyear plans to increase production in the third quarter, but estimates production will be down about 5 million units from 2019. The company said the increase in production over the second quarter reflects "stabilization in our retail business and higher demand for chemicals," according to Mr. Wells.

During the pandemic, Goodyear saw a shift in consumer buying habits, something they have been planning for years.

Goodyear said its e-commerce business increased 15% and mobile jumped 150% in the second quarter.

"We've always talked about a goal of being customer-backing, consumer-oriented to make the tire buying process easier," Mr. Kramer said.

"Our market research says customers want to make tire shopping easier, more convenient. They want to shop on their terms, they want information to guide their decisions, and they want choices for installations."

The focus on customer wants was a driving factor for Goodyear's e-commerce initiative with partner dealers and its Roll by Goodyear mobile buying installation service, Mr. Kramer said.

"And what we saw with COVID, I think proved that out," Mr. Kramer said. "... We have not stopped our efforts to stay on top of (mobility), and our long-term view has not changed."

Goodyear said its line distribution also is looking positive, especially in Europe. In the U.S., the company noted the importance of TireHub L.L.C., the national tire distribution joint venture co-founded by Goodyear and Bridgestone Americas Inc. in 2018.

"The benefit of having TireHub in distribution — TireHub's performance in the marketplace was well above where other distributors are — was a significant factor for us in the quarter," Mr. Wells said.

Mr. Kramer noted the challenges faced with about two-thirds of Walmart Auto Service Centers — a major retail partner — around the U.S. still closed.

"We were disproportionately affected by Walmart temporarily closing those auto service centers. So as they open up — and they will open up and they will thrive again — we're feeling a little bit of the negative of that right now," he said. "But ... excluding the Walmart impact, we outperformed the market."

Goodyear does not expect possible elevated U.S. import duties on tires from South Korea, Taiwan, Thailand and Vietnam — should they be imposed — to have much of an effect on its business because of its emphasis on the premium sector, Mr. Wells said.

"As a rule of thumb for Goodyear, we tend to manufacture where we sell," he said. "So, in terms of imports or exports, the tariffs would not impact us as such. And remember these actions tend to impact the lower end of the market and not sort of the premium segments where we're focused."

Mr. Wells was responding to a question about the Commerce Department's ongoing antidumping and countervailing duty investigation in passenger and light truck tire imports.

"But look, at the end of the day, we don't expect a big impact on us in terms of volume, particularly because of our premium focus," he said. "So as those industry disruptions take place, we're going to — as we did last time stick to our game and stick to our strategy, and we're happy to do it."