Goodyear remolding for worldwide battle
Goodyear Tire & Rubber Company is girding for a global battle of the century. Goodyear, based in Akron, Ohio, announced Wednesday it would divide the company into two worldwide divisions - tires and general products - indicating the company's intention to remake the company in a truly global image, and to stay No. 1 in the world, analysts say.
``Goodyear has been an international company that has been moving more towards being a true global operator for a long time,'' says Harry Millis, an analyst with McDonald & Co., a Cleveland brokerage. ``By eliminating North American and international [divisions] as two separate and co-equal areas, the company has expanded top management's global perspective down into operations and middle management.''
Goodyear's moves may result in some short-term cost savings through cuts to top management and other staff. But Mr. Millis says the move is primarily aimed at future competitiveness, and is an example of Goodyear's long-demonstrated ability to buck pressure to produce fast profits at the expense of future gains.
``Since 1915 Goodyear has said that more people ride on Goodyear than any other tire,'' Millis says. ``Over the years they have managed to stay a step or half step ahead of the competition - it looks like they're doing it again.''
Goodyear's restructuring takes place against a backdrop of foreign companies buying up tire company operations in the United States to gain entry to that market, the world's largest.
Last year Sumitomo Rubber Industries Ltd., a big Japanese tiremaker bought most of Dunlop Tire Company. Continental AG of West Germany also acquired the General Tire and Rubber division from GenCorp. The unit purchased by Continental has since formed a joint venture with Yokohama Tire and Rubber and Toyo Tire and Rubber to make radial truck and bus tires for the US market.
But the big splash came when Japan's Bridgestone (the world's third-largest tiremaker) and Pirelli got in a bidding war for Firestone's worldwide tiremaking operations. Bridgestone finally won the battle earlier this year.
Goodyear holds a comfortable lead over all rivals, however, with 35 to 40 percent of the US passenger car tire market and the largest share of the international market as well. Robert Mercer, the company's chairman, is nearing retirement and is trying to set a course for the future, Millis believes.
Mr. Mercer had set a strategy for Goodyear to diversify, with only about 50 percent of the company involved in the stagnant tire industry, and the rest invested in aerospace and oil. Mercer's game plan was punctured by Sir James Goldsmith in late 1986.
Sir James made a credible run at taking over the company, claiming he would sell off the aerospace and oil segments, since these long-term investments were a drain on profits. Goodyear bought back 54 million shares of stock, getting Sir James off its back but adding a ponderous $2.7 billion in debt to an already heavy $1.9 billion debt load. The resulting debt approached a staggering $6 billion.
That load has now been cut to about $3.9 billion by the sale of the oil and aerospace units and should be down to a manageable $2.4 billion by 1989, Millis says.
But the result has been that Goodyear is stuck in a stagnant industry and Mercer's strategy has been permanently changed. The focus for the company now is attempting to dominate the US and world tire markets to an even greater degree.
``It's a good sign for a tire company to want to be in the tire business today,'' says David Burkhart, editor of Tire Review, a trade publication. ``Goodyear's thrust is to be biggest and best.''
Typically Goodyear has far outspent its rivals on research and development and capital spending. The aim has always been to win out in the long run. Some analysts were concerned when the company trimmed both research and development and capital spending in the wake of Goldsmith's attack. Those fears have waned.
``They have been immensely profitable, even through the recession of early '80s,'' says Dudley Heer, an analyst with Duff & Phelps, a Chicago investment research company. ``At one point they were spending more on R&D than all their domestic competitors combined.''
Mr. Heer says Goodyear has plans to build plants in Canada and South Korea that should help the company retain its edge down the road.