What Is The Future For Goodyear?
Four years ago: In an interview at the Geneva Autoshow, Sam Gibara put forward his views. Goodyear had, according to him, the best people, the best distribution, the most cost-effective plants, the best products and – with its innovative EMT tyres – a three-year lead over its competitors. Within three years, he predicted, 75% of Goodyear tyres produced would be EMT tyres (in 2002, the actual figure was one million tyres).
The IMPACT production process (Integrated Manufacturing Precision Assembled Cellular Technology) was held up as a revolutionary advance, guaranteeing predominance over the competition and an example of Goodyear’s technical leadership. Typical American overstatement? Perhaps, but it led me to ask: “Do you really believe all that Mr. Gibara?” Immediately I realised that this was not a polite question, to put it mildly, and I would have paid money to have been able to withdraw it.
However, despite this apparent disrespect (although it was in fact thoughtlessness) it took Gibara only seconds to overcome his momentary speechlessness and, with his customary charm, he smilingly replied: “Do you really expect me to say no?” Today: Some Goodyear associates are asking me “Why are you against us?” As a journalist you are asked questions like these from time to time, but a journalist is entitled to be critical and to write the truth, even when the truth hurts. But this is not enough for some, who suspect more sinister motives, asking what is the point of such questions? The implication is that the journalist is doing the competitors’ work for them. After all, is it really necessary to look back? Who benefits? Is it not more useful to look at how things are now and how they will be in the future? But is it really as easy as that? Should not the lessons of the past, including the mistakes, be studied in order to see how we arrived at the present state of affairs and how they will affect our future course? According to Gibara’s vision (“Mission into the 21st century”), Goodyear should have become the worldwide number one tyre manufacturer, in the number one position everywhere, or at least number two in certain markets; the undisputed global leader among the big three, with the lowest costs.
More importantly, Gibara promised shareholder value and he saw another competitive advantage in the fact that all this would be achieved with Goodyear’s most important resource – the company’s workforce. All this can be read in Goodyear’s annual reports. The reality is that there have been no significant profits for years and Goodyear is still in third place.
It made a loss of $203 million in 2001 and might not have been able to avoid another loss last year. Goodyear needs a turnaround in its loss-making home market, costs are too high, selling prices are too low and the once-proud corporation is fighting for nothing less than its survival, however unpalatable this might sound to company managers. In the first two years under Gibara’s leadership, Goodyear enjoyed very good results, but these have since declined to today’s levels and the “Mission into the 21st century” has been a flop.
The group is overloaded with a mountain of debt, has big problems with its underfunded pension fund and the credit rating was reduced to junk bond status. All this means no picnic for Gibara’s successor Keegan, who knows that his assignment is a difficult one but who believes that the problems are manageable. What he does not know for sure is whether he will have time enough to make the turnaround happen.
Looking back, what went wrong? Was it, as Gibara claims, due to external factors – Dollar low, Dollar high, rising cost of raw materials, downturn in the economy? Or is Goodyear only in trouble because of the acquisition of Dunlop Europe and Dunlop America? If one looks at the turnover and profit and loss figures over recent years, one has to conclude that these factors alone do not explain the plight of the group and, as a journalist, one is entitled to ask questions. Culture: Are US groups at a disadvantage vis a vis Japanese and European companies due to the fact that Wall Street is constantly pushing them? Or did Goodyear act hastily on what young analysts told the management to do? Are Japanese and European managers in a better position to say “no” to analysts when they think it necessary? Insiders see it that way. They are disclosing that management regularly rejected their business plans for reasons such as too-low projected profits or turnover.
This forced them to come up with a new plan, even though the original one was already ambitious. The consequence was, and is, that the management realised within a few months that the plan was not worth the paper on which it was written. The reaction was inevitable; get out the red pen and cancel marketing and advertising spend, ignoring the fact that this will only compound existing problems.
Is this the reason for so many disappointments over recent years? What good has cost cutting achieved for shareholder value? Costs: Six years ago, Goodyear had to negotiate with the unions, who went on strike for 16 days before Gibara accepted their demands. Did that agree with the expectations of analysts? By contrast, Bridgestone fought the unions and, in some of the company’s plants, the unions went on strike for over a year. Despite this, it seems to be the case that Bridgestone USA has lower costs than Goodyear and my question is whether the Goodyear management accepted the higher costs too readily because they were convinced that they could increase prices to compensate, ignoring the fact that price levels are affected by the actions of the competition.
Manufacturing: IMPACT, the big innovation. As with Michelin and C3M, Pirelli and MIRS and Continental and MMP, Goodyear claimed to be ahead of the competition. Thanks to IMPACT, the management saw production costs falling but without taking into account (or at least without telling people) that it would take many years, due to the writing off of present machines and equipment.
Much more important is the question whether Goodyear has in fact invested as much as it promised in IMPACT, or whether falling financial resources have curtailed investment. Another question is whether it was good business for Goodyear to gain more OE business at lower prices, without having been able to reduce production costs with the IMPACT system? Product: Goodyear’s management has always claimed to have the best products but have so far failed to prove it. It is true that the group has the ability to develop and produce good products, as has its competitors, but this has been affected in the past by trying to cut costs too fast and too early.
Is it due to the fact that a finance-driven company is always focusing on cutting costs, thus reducing investment in the product itself, as well as in the brand by investing less in disciplines such as marketing? And should these not be regarded as investments rather than as costs? While Michelin has regularly spent 4.5% of turnover on R&D, the figure for Goodyear is 2.5% and, having dismissed almost 200 R&D staff in Akron, it is even less than that.
It is not 2%, it is between $340-350 million. Every year Michelin spends this $350 million more on R&D than Goodyear and one assumes that the French company regards this as a necessity. Is it not a touch arrogant for Goodyear to claim parity with its competitors despite investing less – are Goodyear people smart and the others less so, or even stupid? Distribution: Stan Gault decided to deliver tyres to the mass merchandisers because he realised that you can only maintain market share (never mind actually increasing it) when the group’s tyres are sold in all channels, which is undoubtedly true, so this was a good step to take.
The question remains whether Goodyear has done enough to hold on to its existing tyre dealer network and increase it, or have there been too many managers with the conviction that the market has to follow Goodyear, rather than Goodyear has to follow the market? Marketing: Was, and is, Goodyear too finance-driven or too manufacturing-driven? Are these annoying questions? If so, for whom – the managers in finance and manufacturing? The fact is that, with the appointment of Keegan, a marketing specialist has taken the lead in the corporation. Keegan has recruited marketing people from other sectors (for example, Proctor & Gamble) in the USA and other parts of the world to get closer to the market. Under Keegan, the group has started to canvass the end consumer once more, but this is extremely expensive and needs many years before results are evident.
Would it not be better to canvass the independent tyre dealers and convince them to fight for Goodyear, which would show results straight away? However, it is important to lobby the end user as well. The importance of having a good dealer network was proved when, seemingly, the whole of America was anti-Firestone tyres, but the loyal dealers were very successful in re-establishing Firestone in the market, ensuring it did more than just survive. Another question is whether it was a good idea for Goodyear to employ marketing specialists from other industries and let the tyre specialists tell them how they felt the market was working.
Would it not have made more sense to provide management specialists with middle management positions and let them work side by side with tyre-experienced managers before coming to any conclusions? And should Goodyear now be focusing more intensively on the independent tyre dealer rather than the end user? Great people, great brands: How about great budgets? It is good to believe in your own people, but you should also know something about your competitors’ people. You do not have to admire them, but you should respect them as competent people. Goodyear claims to be the number one tyre manufacturer in the world – if this is true, then Goodyear is producing more tyres for less turnover than Michelin and Bridgestone.
“Close the gap” was Gibara’s order, but he never said how this was to be achieved, nor allocated the necessary financial resources. He decided to pull out of the Formula 1 circus, promising to spend the money saved on top of normal marketing budgets. According to high-ranking managers, this never happened.
A good example is the German tyre market, which is one (if not the only) European market where the Goodyear group is making much money. Their share for replacement passenger car tyres is around 30%, compared with 15% for the Michelin group. On the other hand, Michelin spent some 15 million Euros in above-the-line advertising, compared with five million by the Goodyear-Dunlop group.
Added to this, Michelin is getting great exposure from its costly participation in Formula 1 and its Challenge Bibendum has become increasingly popular. This event takes place on an annual basis now and contributes greatly towards Michelin’s image as a company that cares for environmental issues. Great brands don’t just fall from heaven.
It is easy to say “close the gap” but some managers might point out that the Michelin group should achieve a higher market share with the huge amounts of money that it is spending in Germany. Does this mean that the Goodyear management is smarter, working with limited financial resources, or that competitors are wasting their money? This might be the case, but if so, would it not be beneficial to prove it in the books? Michelin managed an operating profit in the region of US$ 1.1 billion recently.
Where is Goodyear’s? Indeed, where was Goodyear’s last year, or the year before that? These are the questions and here is what I think. For too long Goodyear has been a finance- and manufacturing-driven company, with results that are all too plain. If Keegan is successful in bringing Goodyear closer to the market, to concentrate and focus on the market, to listen to customers instead of to analysts, then I have much hope.
And if the marketing people are the ones telling the production people what to produce, then I will have sufficient reason to believe once more in Goodyear. klaus.haddenbrock@reifenpresse.
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