Keegan: Goodyear will take a proven path to the next level
At Goodyear Tire & Rubber Co.'s 2009 annual meeting of shareholders, Chairman, CEO and President Bob Keegan commented on the state of his company.
He also offered brief commentary on the challenges of the economy -- and talked about the strategy Goodyear is implementing "to emerge from the current economic downturn in a position of competitive strength." Here is his speech, delivered in the Goodyear Theatre at the company’s headquarters in Akron, Ohio.
"We find ourselves today in the midst of very interesting times. Today's economic uncertainties and the resultant new economic realities have significant implications for the tire industry and for Goodyear.
"The global economic slowdown increased both in severity and in geographic scope throughout 2008 -- and by year end, the economy had a significant impact on volume in each of our global business units. This obviously negatively impacted our fourth quarter results.
“However, we should not let the global economic decline overshadow the many positive actions that we took, and the results that we achieved in 2008 as we successfully executed against our proven strategies. Through three quarters, our segment operating income was up 5% from 2007 despite the slowing economic growth.
“Let me highlight some of our key accomplishments for the year:
- Total sales were $19.5 billion, or about equal to our 2007 results despite the economic slowdown.
- Global revenue per tire was up 8%.
- Price and mix improvements more than offset raw material cost increases of approximately 13% -- that’s 13% raw material increases for the whole of 2008 -- thanks to some strong early pricing actions and solid product mix improvements.
- Replacement market sales and other sales unrelated to OE were more than 80% of total global sales, with sales to ‘Detroit 3’ automakers now less than 7% of the total.
- Three of our regions, Europe, Middle East and Africa, Latin America and Asia/Pacific, delivered record revenue.
- Goodyear-branded product market share increased in our major markets.
- Both our Latin America and Asia/Pacific businesses reported record segment operating income.
- We made significant progress against our four-point cost savings plan, generating more than $700 million in savings in 2008 alone.
- We completed major restructuring actions, including the shutdown of our Tyler, Texas, and Somerton, Australia, manufacturing plants.
- Implementation and funding of the Veba trust was completed. And you'll recall that this was our innovative approach to dealing with the health care costs of our United Steelworker retirees in the U.S. that took $1.2 billion off our year-end 2007 obligations.
- We aggressively curtailed tire production to better manage our inventories and working capital needs as dictated by the market.
- We reported full year segment operating income of more than $800 million -- a performance that underscored the power of our core business model and the strategic drivers we've implemented over the past several years.
- We were named by Fortune magazine as ‘the world's most admired motor vehicle parts company,’ and named by Forbes as one of ‘America's most respected companies’ and additionally were on Forbes' list of ‘most trustworthy companies in America.’
“These points are important because they provide us with a solid operating base from which to address what we know will be a challenging business environment for the balance of 2009.
“In a meeting of our associates in this theater several weeks ago, I told our associates that these extraordinary times require extraordinary actions. It is very clear to us that given the challenging 2009 economic environment, our intense focus on the seven strategic drivers remains a solid strategic foundation. As we address our market challenges head-on, we are not creating a new path. Rather, we will be taking a proven path to the next level. In fact, I would say that our seven drivers resonate operationally today even more than they did back in 2003 when we first committed to them.
“As I have continually said, everything that we accomplish at Goodyear starts with leadership. I emphasize leadership because success against our other six drivers simply is not possible without outstanding leaders in place throughout the company.
“With leadership as our core, there are three specific areas that will keep us on our proven path toward success. These areas are first top line, second lowering our costs and third managing for cash.
“Addressing top line, the unmatched capability of our new product engine has quickly become the ‘public face of the new Goodyear.’ Our industry-leading new product engine has delivered an unprecedented number of innovative, award-winning new products at a pace previously unattainable in our industry. And as a result we've been able to drive a richer, more profitable product mix, and increase our revenue per tire.
“We’ve been able to consistently offset higher raw material costs with improved price and product mix. And we’ve been able to increase the share of market of Goodyear-branded products.
“Finally, we’ve been able to introduce new products that have had dramatic revenue and margin impact and that have consistently gained overwhelming endorsements from independent, third-party sources.
“Our new products have continually energized our industry-leading network of tire dealers. In today's economic environment, our new product engine and outstanding dealer network are absolutely critical. Globally, we will introduce more than 50 innovative, high-impact new products in 2009. Our dealers in all regions of the world are supportive and appreciative of our efforts.
“During these challenging economic times, new products, strong dealer support and innovative marketing programs will be the core revenue-generating strengths for Goodyear.
“I’d like to mention that a key 2009 product introduction for the North American market is the Assurance Fuel Max tire, a new product with fuel saving technology that means consumers can potentially save 2,600 miles' worth of gas over the life of the tire when compared with our previous and hugely successful Assurance tire. This tire provides 27% less rolling resistance, so it rolls easier and requires less power. That 27% equates to a 4% overall improvement in highway fuel economy, and means clearly less money will be spent at the gas pump.
“Since announcing our four-point cost savings plan in 2005, we have implemented $1.8 billion in cost reductions to help lower our costs. In addition, we've eliminated approximately 25 million units of high-cost production capacity. We continue on our path to have more than 50% of our total capacity in low-cost countries by the 2012 timeframe, and at year-end 2008 we were at 43% against that 50% goal.
“To address the current environment, we have implemented significant reductions in our global workforce, a process that has been ongoing for the last six years. Since the middle of 2008, we have eliminated more than 5% of our global workforce, or almost 4,000 positions. The reason for that: to be more competitive.
“In addition to the implementation of the Veba trust, we put in place a salaried pension benefit freeze in the U.S. as we migrated to a defined contribution retirement plan.
“Our planned cost actions for the balance of 2009 are nothing less than a continued ‘attack’ on our cost structure, with the intent of driving our break-even point considerably lower. With this plan we have now raised our four-point plan target to $2.5 billion by the end of this year, which means an additional $700 million in cost reductions during 2009. We will meet this target by:
- further reducing our global workforce by nearly 5,000.
- implementing a global freeze on salaries.
- lowering our manufacturing cost through a combination of shortened work weeks, reduced manufacturing personnel and reduced third-party sourcing.
- increasing our continuous improvement efforts through lean manufacturing and Six Sigma processes.
- delivering increased purchasing savings.
- eliminating non-essential discretionary spending throughout our company. and
- continuing to close underperforming retail stores.
“In addition to these four-point plan actions, we are aligning our manufacturing capacity with lower industry demand. It’s an absolute imperative. We plan to reduce capacity by an additional 15 million to 25 million units over the next two years.
“Our focus on managing for cash has guided our actions over the past several years. Considering the current environment, we are in a much better position today as a result of those initiatives, and those initiatives included:
- a series of debt transactions that extended our maturity dates to a point where the only significant maturity we have prior to 2011 is $500 million in December of this year. That’s the only maturity between now and 2011.
- a highly successful equity offering in 2007.
- the Veba trust agreement, which eliminated more than $1 billion in liabilities.
- the sale of non-core assets totaling more than $1.8 billion to improve our balance sheet.
- a series of contingency actions beginning in 2008, including cutting tire production, curtailing capital expenditures and reducing discretionary spending.
“Our planned 2009 cash actions will continue to be aggressive. We are implementing targeted inventory reductions made possible by significant improvements in our supply chain, and we anticipate these reductions will reach more than $500 million, or approximately 14% of our inventory during 2009. We also are adjusting our capital expenditure plan, and now expect spending of between $700 million and $800 million in 2009. In addition, we are pursuing non-core-to-our-strategy asset sales.
“While we believe these actions are appropriate and address the business challenges as we see them today, flexibility in this uncertain global economy is an imperative. As in 2008, we are preparing contingency actions beyond these initiatives… and we are fully prepared to implement additional actions if market conditions further deteriorate.
“As macro economic challenges persist, I remain confident in Goodyear's ability to drive performance. That confidence derives from:
- a ‘game-tested’ and proven leadership team that I believe is the best in our industry.
- a proven track record, based firmly on the strength of our strategies.
- the continued success of our products in today's marketplace, our dedication to driving our innovative global new product engine and the strong marketing programs and network of successful dealers we wrap around our products.
- the significant actions we are taking to improve our cost structure, and our absolute focus on managing for cash.
“Our confidence is also strengthened by the constructive dialogue we’ve had with our customers. They believe in us. As an example, at our February North American dealer conference in Washington, D.C., we introduced 12 outstanding new products for the consumer tire business alone. We launched four new commercial products for a variety of truck applications. And our dealers were enthusiastic and hugely supportive of these product line additions.
“This is not just a North American statement on new products. I'm simply using North America as an example. Our global offerings are unmatched in the industry. Globally, we will introduce more than 50 new products this year, and they’re all intended to be high impact in their markets.
“Prior to our annual dealer conference in North America, we didn't know what the dealers' mindset would be given current business conditions. It quickly became clear that they share the same calm and confident determination that is held by the Goodyear team. I was impressed! Dealer after dealer commented that our unprecedented focus on innovative new products in a down market gives them with both the products and the associated marketing tools to capture an increasing share of consumer purchases, and further strengthens our mutual position for the future.
“Ironically, we went to the dealer conference to energize our dealers, and instead their positive attitude energized us. Times may be difficult, but they trust us. Our track record for innovation, our commitment to grow their businesses – not just sell them tires -- and our ability to rise above adversity give them confidence.
“Our goal in 2009 is to reward their -- and your -- confidence in us by aggressively positioning Goodyear to weather this economic storm and to seize upon the opportunities when our markets rebound, as they inevitably will. As always, I thank you for your time today and for your continued support as Goodyear shareholders.”