Waiting for Keegan – Goodyear is lacking life

Robert J. Keegan (53), one time top manager with Kodak, assumed the position as Goodyears’s president and chief operating officer in Akron on 1st October, making him the deputy and named successor of chairman Sam Gibara (61). According to group publications, Keegan will be responsible for day to day business, whereas Gibara will be more concerned with strategy.

October 1st saw a management reshuffle and some top managers are worrying about the fact that from now on they have to report to Keegan instead of Gibara. Decision making can now be accelerated without considering personal commitment. Personnel policy has got a new lease of life.

It seems reasonable therefore that urgent personnel decisions regarding upper management, put on ice so far, should not be made without consulting the group’s new strong man. Within the Goodyear group questions are being raised, whether it was Gibara himself who selected his COO or whether he was urged by the Board of Directors to do so. If the latter is true, Keegan will keep his distance with regard to Gibara and those closest to him.

However, there will be no big showdown between the two men at the top, because Keegan will probably be made CEO within the next two years and Gibara will remain chairman for the rest of his career. On the other hand it is quite possible that Gibara himself recruited Keegan, believing that Goodyear needs new market and marketing impulses which someone like Keegan can provide. There are good reasons for keeping this discrete, because if Keegan had been recruited by the Board of Directors, Gibara would soon find himself in a lame duck position.

During his years at the top of group management, Gibara has made many shareholders very rich. However, the big institutional investors, which still hold share packages, are becoming impatient and want to see improvements. Following a profit warning in September, Goodyear shares fell to a temporary absolute low of 18 US Dollars.

Less than two years ago the group was worth 3.5 times as much as today. And even one year ago, shares were worth 140 per cent more than autumn’s figure.

It is true, that competitors’ share prices have fallen significantly too (see figure), but not to the same extent as Goodyear’s. In spite of several announcements, the group has failed to introduce far reaching improvements in the current year and in addition to the unfavourable conditions, from which all other companies suffer too, Goodyear has its own home made problems. In 1999 the economic situation was misjudged which led to the closure of a factory (Gadsden) and then to its subsequent reopening, due to a higher demand than expected.

Consequently, Goodyear’s delivery shortages have caused both an image and customer loss on the market. Competition in the USA is mainly determined by the Michelin group, which, after careful planning and preparation, has convinced the market with a good multi-brand strategy and an excellent delivery record by means of precise demand management. Balanced marketing programmes, targeted to the market and agreed upon with the partners, guarantee the retailer sale.

Michelin, BFGoodrich and Uniroyal are no longer just tyre names but tyre brands, which are seeing increased investment. Goodyear will have to react. The so-called G3 strategy may provide an answer in theory, in practice, however, it cannot be implemented until the three organizations, Goodyear, Dunlop and Kelly, thrown together so far, work alongside rather than against each other.

In addition to time, this will also require management strategy based on conviction and motivation instead of a mere dictating of rules. US demand for heavy truck tyres is in extreme decline and if this trend continues commercial vehicle business in North America could have suffered a 20 per cent decrease by the end of 2000. Consequently, pressure on the replacement market is increasing and it has soon become clear that under these circumstances and in an era of fast rising raw material costs, absolutely necessary price increases are out of the question.

However, the Firestone tyre recall may have caused a windfall profit but can, of course, not stop the negative trend. One does not have to be an analyst in this field to ask some simple questions, such as, is Goodyear attempting to blame its poor results on the strong Dollar and the weak Euro? How about competitors, are they not in the same position? Why do they seem to cope better? And how was Michelin able to achieve better results in this problematic economic climate when Goodyear struggled? Now Gibara wants the group to be more market driven. Goodyear has so far been regarded as more product or manufacturer driven which is partly due to Gibara, a member of the French connection.

His career path crossed that of manager Jack Sardas, former president of the group and responsible for the tyre business worldwide, but now long retired. Gibara was Goodyear’s finance director at the time, then appointed Sardas’ successor as Managing Director and subsequently made Sylvain G. Valensi, now Goodyear Dunlop’ s European president, sales director of Goodyear France.

The French connection is not renowned for its good wines or excellent cuisine. When these gentlemen were still close enough to the French market – e.g.

as regional presidents with good customer contacts – it quickly became clear under Francois Michelin’s management that a product or manufacturer-driven international world group was emerging. Up until the late mid-eighties, quality had not been of as much importance in the USA as it had been in Europe or even in Japan. At that time, Goodyear was the reputable exception, because it was the only US tyre manufacturer who consistently promoted steel belted-radials, the product of the future.

In doing so, the group opposed the strategies of its international competitors. By means of intensive research and development, it manufactured quality products, introduced them as original equipment into the market and later established these products on the replacement market too, supported by the demand created by OE pull-through. Michelin’s management underwent its reshuffle some time ago.

Edouard Michelin has been giving the beat and his 1995 reorganization guaranteed the group’s market driven direction, for which quality has always been top of the agenda. Michelin aims to achieve necessary improvements in productivity (to recap: 10 per cent of the European staff will have gone in three years as announced last autumn) and simultaneously wants to enter into the very expensive but very prestigious Formula 1 business, which Goodyear left for financial reasons. Up to now it is no more than a mere request by Gibara to make the group more market driven.

It is said that in meetings the chairman’s tone, always polite, intelligible and sympathetic before, has turned harsh and cold. It happens more and more that the managing directors are complaining in confidence about Gibara’ s demands for more responsibility from his regional managers in continental meetings. At the same time, however, he fails to realise that increased responsibility is often opposed.

Is Goodyear prepared for change? Official statements, according to which the group’ s poor performance can mainly be attributed to the strong Dollar and the weak Euro, increases in raw material costs, the weak US market for commercial vehicles and other unfavourable economic developments, have been raising doubts. For the group’ s staff, such information does not at all translate into quick and consistent change. Instead it confirms those who oppose the change and think that waiting for a strong Euro and OPEC’s reduction in oil prices will help Goodyear out of the slump.

Unless the group starts to analyse its own decisions critically, it will never be market driven. These changes must take place out of public scrutiny, but happen, they must. However, as long as those trying to shoulder the blame, e.

g. for the insufficient supply of certain products, are deemed pessimistic rather than constructive, there is still a long way to go. Indeed there are still managers within the group, who think that the sales department has merely failed to advertise Goodyear’s fantastic products at suitable prices.