Mission “successfully completed”? The Goodyear-Cooper integration and its contradictions

When Goodyear Tire & Rubber Co. announced at the end of January that 500 jobs are being cut worldwide and linked this to business performance in the EMEA (Europe Middle East and Africa) region (see “Goodyear reports losses of $104 million in Q4 2022, points the finger at Europe”, T&A 3/2022, page 18), executives were effectively acknowledging the significant pressures facing the business. When Goodyear published its full-year 2022 and fourth quarter 2022 figures a few days later, the red numbers highlighted the pressing reality of those problems. Within that broad picture, it now seems clear that the US$2.8 billion Cooper takeover initiated two years ago has not yet brought the promised return, something Goodyear’s market capitalisation and the relative profitability of its competitors neatly illustrate. Meanwhile, some within Goodyer refer to the integration as “successfully completed”, but without offering details. In other words, the supposed success of the Goodyear-Cooper integration doesn’t match the company’s sub-par financial performance. With that in mind, here we take a pan-European look at those particularly contradictory perspectives.

Tyres & Accessories has been requesting updates relating to the integration of Cooper and Goodyear from both Goodyear UK and EMEA representatives for months. Similarly, our colleagues at Neue Reifenzeitung (NRZ) have been doing the same with reference to the German and DACH markets since early summer 2022. Back then, NRZ attended an interview with the local Goodyear management duo Dr Andre Weisz and Dr Guido Hueffer. Several reminders later, at the end of January, NRZ received a written “summary on the topic of Cooper” presented “for the time being”. At the core of the press statement was the assertion that post-takeover integration of Cooper by Goodyear in the DACH market “was successfully completed”, looking ahead, the focus is “now on the marketing of Cooper tyres”.

Repeated follow-ups asking content-related questions and specifically requesting clarification of the meaning of “for the time being” came to nothing. So, why the silence? Answers have been less than forthcoming to this day, something that reflects the observations of insiders claiming to have received “little informative” internal communication relating to the Cooper integration.

Some might suggest that the management of local markets like the UK and Germany as well as EMEA-level executives have better things to do than answer long lists of questions from journalists. The statements made by Goodyear’s headquarters in Akron, Ohio in January/February relating to so-called “rationalisation and restructuring measures” resulting in 500 jobs cuts worldwide, underline that point.

Not only did Goodyear’s Akron senior management clearly link the global company’s overall worse-than-expected performance with red figures in EMEA (see “Goodyear…points the finger at Europe”, T&A 3/2022, page 18), they also said Europe should bear brunt of the job cuts.

Where are the 500 job cuts being made?

The announcement of the so-called “rationalization and restructuring measures” reached us after our February issue went to press, so our initial analysis can be read in the March edition of the magazine (see “Europe to bear 40% of Goodyear global job cuts”, T&A 3/2022, page 19).

The main points are that Goodyear has decided to cut some 500 jobs worldwide, which corresponds to five per cent of the approximately 10,000-strong global employee count. Goodyear’s total workforce amounts to some 74,000 worldwide, including staff at its 57 plants, but the two numbers clearly illustrate that not all of them are going to be affected.

So where are the jobs being cut? At the time of the job cut announcement, the Akron Beacon Journal reported that “around 90” positions in the group’s Akron headquarters were affected. That detail hasn’t been officially verified, but assuming it is correct, that left 410 job cuts unaccounted for.

As we reported online at the start of February and in the March edition of the magazine, officials shed some light on the subject roughly a third of the way through Goodyear’s fourth-quarter 2022 financial results document. Hidden in the corner of a textbox on page 11 out of 37 under the heading “Continued review of the European cost structure”. Here officials wrote that “about 200 jobs” – roughly 40 per cent of total cuts – would be made “in Europe”. “Europe” mind, not EMEA.

In the same place Goodyear also said that it would embark on a “review of the production footprint in EMEA” to improve the company’s “cost position”. Naturally, such language raises fears of additional job cuts at European tyre plants.

Goodyear’s February 2023 publication of its full-year 2022 financial results clearly follows the company’s October 2022 news that it is consulting on the closure of the Cooper/Avon tyre factory in Melksham, UK. That closure, which reportedly affects as many as 350 jobs, will bring with it costs of around $80-90 million during 2023, before savings of $30 million “by 2024”.

To say those jobs are uncertain is an understatement. But since the costs and cost-savings associated with the mooted Melksham closure were already reported in October; are presented separately from the other job cuts in the Q422 results; and don’t yield direct benefits this year; the closure of Melksham is a different point to the wider European job losses announced in February.

Russian job losses and recruitment freeze

Goodyear EMEA therefore still has to implement 40 per cent of the global job cuts – some 200 positions. Getting further details on exactly what that means in the UK, German/DACH and Italian markets we are most closely associated with is not easy. Official Goodyear sources in the UK and Germany were not forthcoming when we contacted them on the subject. Neither were the Unite and IG BCE unions in the UK and Germany respectively. Talking to Goodyear representatives in different markets off the record, however, reveals that the clearly delicate internal considerations and discussions on the subject remain ongoing.

We haven’t heard anything specific relating to the UK or Italian markets. Similarly, our German colleagues report that nobody has been informed about plans to reduce their local workforce. At any rate, no figure relating the German organisation has been shared at employee Town Hall meetings or via other sources of information.

Fear often fills the gaps made by uncertainty. The news that Goodyear’s Russian sales organization will make around 80 of the 200 job cuts in Europe, and that recruitment has also been suspended for the time being may allay some of those fears, although we must add that neither point was sourced from nor confirmed by Goodyear EMEA. Together with the reports of 90 job losses in Akron, that means 330 of the global job losses remain, of which some 120 are expected in Europe.

That’s why some within the German Goodyear organisation perceive a “certain uncertainty” among employees in middle and lower management with regard to their own professional future at Goodyear. That uncertainty was fueled by media reports in Luxembourg at the beginning of February that Goodyear had “no official plans” to cut jobs in the Grand Duchy. Those reports were confirmed by the relevant local trade unions and the Ministry of Labour. However, the manufacturer has acted to “slow down research and development activities” via “short-time work”, a procedure that the ministry has already “in principle” agreed to. That’s all significant for job cut considerations because the US manufacturer operates the Goodyear Innovation Center (GICL) in Colmar-Berg, Luxembourg, in addition to its two factories. And if jobs don’t appear to be going there, where?

Goodyear extended EMEA tyre production shutdown into 2023

What we do know is that Goodyear extended the above-reported winter production cuts into the first quarter of 2023.

First, some context on that point. Goodyear reported that fourth-quarter 2022 tyre production levels were 3.5 million units below 2021 when executives published the firm’s full-year 2022 figures in February. Production restrictions were enacted in order to “control working capital given the weaker volume environment.” Officials have since confirmed that they decided to extend the pre-planned winter production shutdown into the first quarter of 2023 in the Europe Middle East and Africa (EMEA) region in order to rebalance inventories.

“…due to the current economic downturn across EMEA and consequent softening of the market, Goodyear made the decision to prolong its pre-planned winter production shutdown in EMEA. This enables us to have an inventory level representative of market demand and offset costs”, Goodyear executives said in a statement.

Goodyear officials didn’t offer further details, but the tyremaker’s fourth-quarter 2022 investor letter specifies that “lower production in the fourth quarter totalling 3.5 million units (3.2 million consumer, 0.3 million commercial) will impact first quarter unabsorbed overhead.”

Goodyear also added that in the fourth quarter alone, the manufacturer sold one million fewer tyres in EMEA than in the same quarter of the previous year. In the EMEA replacement markets in particular, large sales volumes have been lost, namely a total of 1.5 million units, while at the same time half a million more tyres have been sold in original equipment, which is not exactly known for its high margins.

What we do know about current output is that “lower production in the first quarter 2023” follows “a similar unit reduction to the fourth quarter” and that it will “impact second quarter unabsorbed overhead.”

In answer to T&A’s questions, Goodyear representatives explained their rationale for the latest production reduction:

“2022 presented a very challenging operating environment for the tyre industry, however Goodyear has robust business continuity and supply chain planning processes in place which helped us to successfully mitigate the ongoing external challenges throughout the year, with no disruptions to our production or supply to customers.”

Nevertheless, an official statement warned that “Goodyear customers [should] forecast their requirements adequately so that we can ensure they will be supplied according to their needs.”

Ongoing integration impact

Goodyear’s negative full-year 2022 figures raise the somewhat blunt question: where would Goodyear be without Cooper? When the Cooper acquisition was completed in the summer of 2021, Richard J. Kramer, chairman, CEO and president of Goodyear Tire & Rubber Co., highlighted $165 million in synergies that would be realised within two years. The following year, Kramer even spoke of being able to achieve synergies of up to $250 million. However, evidence that Goodyear has saved significant sums of money in the past fiscal year as a result of the Cooper integration is not apparent from the most recent annual report.

The question of what Kramer meant when he promised two years ago to “create added value for our shareholders” also remains. The Cooper acquisition cost a total of $2.8 billion, while the Goodyear/Cooper combination now has a market capitalisation of just over $3 billion, but is lugging around a mountain of debt weighing in at $7.9 billion. As someone close to the company’s headquarters in Akron, Ohio, told us: “I have no idea how [Goodyear boss Kramer] could believe that Cooper could add value to Goodyear.”

Added value in Europe?

From the beginning, Goodyear’s acquisition of Cooper has been more about the company’s position in the US and secondly China than about Europe. Indeed, something we learnt from the initial
Cooper acquisition announcement was subsequently reiterated during questions with journalists – the move is about “expanding leadership in the US” while also doubling Goodyear’s presence in China. And that is also how things are turning out. Specifically, the post-acquisition Goodyear is now number one ahead of Bridgestone again in the US market.

In Europe, the Cooper and Avon brand tyre business is relatively insignificant in comparison with the huge scale of the markets in North America and Asia. While the Cooper Group reported global sales of $2.5 billion (2.1 billion euros) in 2020 in the year prior to the acquisition. At the same time, the Cooper Tire & Rubber Co. Europe Ltd operation, which is based in Melksham generated £141 million (157 million euros) or 7.5 per cent of group sales and that of Cooper Tire & Rubber Co. Deutschland GmbH, based in Dreieich near Frankfurt, just 20.2 million euros (around 1 per cent).

Cooper, Avon and brand integration questions

Important questions remain as to where in the large and colorful bouquet of Goodyear group brands Cooper and Avon are now located. At the same time, details of how the respective ranges are going to be developed and priced also remain. Recent events – and, it must be said, confusion – illustrate diverse opinions relating to Cooper and Avon brand strategies across EMEA.

The German wing of Goodyear EMEA, for example, recently showed dealers how it has added two more logos to its product portfolio, those of the Cooper and of Avon brands. However, the German introduction of the latter brought with it what appeared to be significant changes in the Avon brand’s positioning, in the German market at least.

Avon is, of course, a ubiquitously British tyre brand, hailing from the now-closing Melksham tyre production plant which is located alongside the river Avon. Across Europe, the brand has a particularly good reputation when it comes to motorcycle tyres. However, in the UK it brings with it equally strong prestige when it comes to car tyres. Indeed, Tyres & Accessories has repeatedly seen tyre sell-out pricing data over the years that positions Avon slightly above its Cooper sister brand.

“The Cooper family of brands are complementary to our multi-brand portfolio and are meaningfully differentiated. The Avon brand will remain in our portfolio both for passenger and motorcycle tyres.” Jaap Van Wessum, Goodyear general sales manager UK & Ireland and Cooper EU

That’s why it was somewhat surprising to learn that German Goodyear representatives reported that the Avon brand will only be offered on motorcycle tyres in the future. Specifically, Claus-Christian Schramm, Goodyear’s Director Sales Replacement Consumer Tire Dealer, Germany shared the news with delegates at the recent Goodyear Retail Systems conference in Königswinter, without offering further details.

T&A heard rumours that the positioning of the Avon brand was changing in January. Back then, officials offered no signal that anything was changing back. In light of the messages coming out of Germany, we asked again.

This time, Goodyear representatives moved quickly to clarify that the Avon brand will remain in the company’s product portfolio both for passenger and motorcycle tyres.

Specifically, in what later became an EMEA-wide statement Jaap Van Wessum, Goodyear general sales manager UK & Ireland and Cooper EU commented:

“We are continually working on enhancing our brand portfolio so that we get the most out of our brands. This includes clarifying the role of each brand and adapting their offer accordingly. We do not plan to exit any brands at this time. Both Cooper and Avon brand’s equity and value is part of the reason behind the strategic acquisition we made. The Cooper family of brands are complementary to our multi-brand portfolio and are meaningfully differentiated. The Avon brand will remain in our portfolio both for passenger and motorcycle tyres.”

Tyres & Accessories understands that Avon branded car and two-wheel tyres will continue to be manufactured at the company’s Krusevac, Serbia and Montlucon, France plants respectively. And that means that they will be available for distribution and sale across Goodyear’s Europe, Middle East and Africa (EMEA) markets moving forward. When it comes to more specific details relating to individual markets, these brand positioning discussions – company officials told T&A – are part of the ongoing integration process and decisions will be made in partnership with the various local distribution partners. Therefore, the approach of one market may be different to another.

With all that in mind, the future of the two previously Cooper-owned factories in Europe offer a different contrast. Cooper Melksham is slated for closure. The Serbia manufacturing operation which Cooper bought from the former Trayal tyre company in 2012, on the other hand, has been consistently modernised. The result is that Kruševac has an “excellent reputation” and is purported to be “absolutely competitive” by those in the know, making it an important future building block in Goodyear’s European factory network. It is said that Goodyear still need low-cost capacity in Europe, which again makes the CureVac 6.5 million tyres a year manufactured by the Serbian production base of strategic importance.

That all raises questions about the rest of Goodyear’s tyre production network. On the one hand, Goodyear recently modernised the plants in Riesa and Fürstenwalde, automating production processes with large investments which are said to have “reduced” the future pressure on these two German plants. For its part, Wittlich has a special standing in the group as a truck tyre and retreading factory. Hanau and Fulda remain, where employees are likely to be concerned about the potential consequences of the Cooper integration.

In other words, the contrasts and apparent contradictions continue. For some, the integration has been “successfully completed”, but questions relating to brand positioning and tyre production remain.