Keegan to shareholders: 'We know the challenges are many'
Goodyear Tire & Rubber Co.'s annual shareholders meeting, held yesterday in Akron, Ohio, was a "coming out party" of sorts for CEO and President Bob Keegan.
With Sumitomo Rubber Industries Ltd. Chairman Naoto Saito on hand, Chairman Sam Gibara passed the torch to Keegan, who will take over as chairman when Gibara retires on June 30. Following the announcement, Keegan had this to say to the shareholders:
"Before I comment on the state of the company today, I would like to publicly thank Sam Gibara for 37 years of dedicated service to Goodyear. Sam cares deeply and passionately for our company and has provided leadership through both robust and challenging times. Sam, we appreciate the commitment you have made in so many ways -- and in so many places -- to the company, and we thank you for your leadership.
"Sam, I also want to thank you personally for advice and counsel that have been important to me as I have come into the company and as we have managed our leadership transition in a smooth and professional manner. We wish you and Salma all the best.
"I'd also like to thank the board of directors for its strong support. Your board has challenged us to drive forward with an aggressive plan to restore Goodyear to market and financial health. Board members have
provided important advice as we have secured our bank refinancing agreement and established our turnaround plan.
"Thanks also to our shareholders, associates, retirees, customers and suppliers for their continued support of our company. I know it has been a difficult period for this company and the messages of support I have received from each constituency have been gratifying.
"Over the past four months, I have received many calls, e-mails and letters of support, candor and honesty. I appreciate each of them.
"I also want to extend my own welcome to Saito-San, our valued partner from Sumitomo. I am pleased that you were able to join us and I anticipate that we will continue to meet regularly to identify opportunities to forge
an even stronger relationship.
"It is my pleasure to be here this morning as chief executive officer for the past four months and chairman-elect of the company. I am truly honored. I relish the challenge and I believe deeply in the future of this company. But I don't underestimate the substantial hurdles that confront us.
"2002 was one of the most challenging years in our history. You and I are disappointed in our results.
"It was a year where painful decisions had to be made to begin the restoration process.
"We have had to eliminate jobs, including a major reduction in our salaried staff in our corporate and North American headquarters operations, and hourly jobs in facilities around the world.
"We have been forced by dramatic escalation in health care and prescription drug costs to share a greater amount of that increase with our
associates and retirees. And I know that you are fully aware that we have eliminated the dividend on our stock.
"I know that these and several other decisions were not popular. I assure you that we took none of them without significant consideration and analysis.
"In the final assessment, our focus was on the best interests of all parties to ensure the future viability and success of our company.
"The same test held true for another significant milestone that has been completed recently -- the renegotiating of our bank agreements.
"In analyzing all of our options as we negotiated this important agreement, we were always mindful of what was in the interests of each and every one of our important stakeholders: all of our associates and their
families, the communities in which we operate, our customers, our suppliers, our lenders -- and our sharholders. The agreement we
completed does not disadvantage any of these important groups, and in fact, provides the best pathway to Goodyear's turnaround.
"Our new bank agreements have given us the time and the financial flexibility to fix our North American Tire business. But that's all they
give us. We must now do the work. And we need to drive well on a very fast track to complete this turnaround.
"The headwinds of high raw material, energy and health care costs are stiff. And our competitors are not going to step aside to help our cause.
"So, we know the challenges are many, and we know we have many tough choices yet to make. But they will be made.
"The good news today is that the turnaround has begun. The momentum is building. Six of our seven business units continued in the first
quarter their sterling performance from 2002. They achieved sales gains, market share improvement and significantly higher margins.
"Eighteen months ago, I could not have said that. We had significant issues in all of our business units. We took action in each of these six businesses to strengthen leadership, reduce costs, energize our brands, launch high-impact new products, and, most importantly, improve our
programs and communication with our customers. And, we did this aggressively. The planning was solid and the execution was excellent.
"Today, these businesses are reaping the benefits of those changes and building momentum for further growth in 2003 and beyond.
"Many of the lessons learned there are being applied in North American Tire, our largest and most complex business. We have new leadership in
North America in Jon Rich and his new team. It is a team that has rededicated itself to our important dealer channel. We already have seen
positive results, much of that an outcome of a major meeting with dealers in Orlando in February, where we listened more than we talked.
"We have seen market share gains in North America in each of the last two quarters, recording the strongest gain in our most recent quarter. Market share gains in our Goodyear and Dunlop brands in the very dealer channel where we had significant issues just last year. And we have focused on greater profitability in our business with automakers. Profitability for our commercial truck business is improved.
"We've increased our revenue per tire and we're ahead of schedule on cost reduction initiatives. So despite reporting a loss in the first quarter, when you look under the covers, it is clear that Goodyear is making progress. Share gains and a lower cost structure are reason for optimism.
"Still, to fully achieve our turnaround, we require a re-energized focus on key strategic changes -- a sense of urgency in what we do. And
we must clearly and decisively execute, execute, execute.
"We have targeted $1 billion to $1.5 billion in cost reductions by the end of 2005.
"We will leverage our global manufacturing footprint to improve our cost competitiveness.
"We will simplify our business, removing expensive complexity that adds no value.
"We will turn down unprofitable business from both replacement and original equipment customers.
"We will sell non-core assets. We have already begun to explore the sale of our Chemical Division. We will be aggressive in this area.
"Capital dollars and R&D spending will be reserved for projects that are both high impact and offer high returns.
"We will increase spending on core brands and finance that spending increase by cutting costs in non-core areas.
"We will reduce the overlap in positioning and pricing of our brands. Brand strength will be fortified by pricing our brands competitively.
"We will bring more exciting new products to market, and we will do it faster. New products are the lifeblood of our business. We have not stood still; the new product introductions we made in '02, which garnered high praise in the media and the market, are helping us in '03 --and we have a strong array of products slated for this year and next. We will put our
products up against any in our industry.
"We are going to make Goodyear the easiest tire company to do business with. We will have an advantaged supply chain.
"Each of these actions are built into our annual operating plans and are key to our turnaround.
"Our goals are aggressive, but achievable.
"By 2005, we expect Goodyear to increase market share by two points in North America and by one point in the rest of the world.
"We expect to increase revenue per tire by 4%, reduce costs by $1 billion to $1-1/2 billion, achieve 6% return on sales and 15 to 20% return on invested capital, improve inventory turns by two turns and reduce our debt.
"And, importantly, be in a position to once again access the capital markets.
"We have a vision for Goodyear as we remake it. It is a vision of a market-focused tire company that provides superior products and services --
to end-users and to our channel partners -- that leads to superior returns for our shareholders.
"I believe we have the leadership, the talent, the drive and the willingness to win to achieve that vision. As an associate of this company
I know I must be part of a team effort, just as all associates of the company must commit themselves to the team's goals if we are to succeed. I am counting on the passion and execution from our team to make it happen.
"I am proud to be a part of this great company, focused on creating a business proposition that will again make Goodyear the world's greatest name in our industry.
"I would like to ask all of you to help our turnaround. I'd love to count all of our shareholders as customers. And I'd like to hear from you on your buying experience.
"Thank you very much for your attention this morning. I look forward to returning next year to report on our progress."