Goodyear Tire & Rubber Co. says it is withdrawing from certain segments of the private brand tire business in North America.
The announcement "is part of our continuing strategy to focus selectively on the more profitable segments of the business," says Jon Rich, president of Goodyear's North American Tire business. "Our intention is to build upon the market strength we have established in our branded and retailer-specific product lines."
The action affects approximately 10 private brands that are currently manufactured by Goodyear and are sold by a small number of wholesale customers to tire retailers.
Goodyear would not reveal the names of the affected customers. However in March, Goodyear said its new Fierce tuner brand would replace the Essenza private brand at SURE Tire Co. Since then, SURE Tire has been phasing out Essenza, manufactured by Goodyear.
Goodyear says this segment of the private brand business represented close to one-third of the company's overall private brand position in 2005, or approximately $300 million in sales. The cuts will eliminate about eight million units that the company manufactured in five of its North American plants: Fayetteville, N.C., Gadsden, Ala., Tyler, Texas, Union City, Tenn., and Valleyfield, Quebec. The decision will require a corresponding reduction in Goodyear’s tire manufacturing capacity in North America.
(The Akron Beacon Journal, citing a June 20, 2006, report from a JP Morgan Securities analyst, reported that Goodyear may push the union to close at least one United States plant "that makes low-profit, private label tires.")
Over the next 12 months, the company says it will work closely with affected customers to help them transition to alternative Goodyear products or other sources of supply.
"While our branded replacement business remains strong, the overall environment, including a very weak industry and continued raw material price escalation, likely will result in full year operating income for North America below 2005 levels," adds Rich.
"We remain confident that the strategic actions we are taking in North America will allow us to achieve 5% operating margins, consistent with the three-to-five-year next stage metrics announced to investors last September," says Bob Keegan, Goodyear's chairman, CEO and president.
"These strategic actions include selectivity in the private label and original equipment businesses, expected margin improvements from new products and effective marketing, and cost improvements from expected capacity reductions, a new union contract, and reductions to selling, administrative and general expenses."
Keegan says he expects year-over-year improvement in total operating income in Goodyear's operations outside of North America.
