Goodyear's Rich says strong manufacturing is possible in North America

Jan. 21, 2005

"I suggest that while Goodyear’s future may be independent of its American manufacturing base, a strong and successful manufacturing asset can be achieved in North America, can contribute to an even stronger Goodyear, and will be an advantage for our customers," Jon Rich, president of Goodyear Tire & Rubber Co.'s North American Tire unit, declared at TBC Corp.'s annual meeting earlier this month.

Today's Wall Street Journal reported that Goodyear is examining North American restructuring options, which could include plant closings.

A Goodyear spokesman told that the Akron, Ohio-based tiremaker is "exploring restructuring options on a global basis" as part of its "planning process."

Options could include plant closings, production transfers, or conversely, even adding plants, he said.

Rich's speech, in its entirety, is as follows:

"This morning I want to talk about two topics which are near and dear to me: Goodyear’s turnaround and the future of tire manufacturing in North America, and why these topics are reasons to believe in our industry.

"The turnaround of Goodyear, which began with Bob Keegan’s appointment as CEO some 24 months ago, is clearly gaining momentum. At the same time, with the recent closure of several factories here, the future of tiremaking in North America is perhaps less clear. But I believe that there are good reasons to be optimistic about both of these things.

"When Bob spoke to you last year, Goodyear was in the early stages of a turnaround -– a turnaround that is still on-going –- and he outlined seven key elements... the drivers of Goodyear’s comeback. He calls them the 'Seven Reasons to Believe,' and they are based on the key strategies, processes and philosophies we put into place. They are as valid now as they were a year ago.

"The seven reasons are listed in no particular order -– with the exception of the first: Leadership. You have to have the right people at the top, setting the tone, the direction and the vision. You know it yourselves from your own businesses. It applies to Goodyear, it applies to TBC, it applies to every business.

"Of the other six –- a focus on cash; lower cost structure; leveraged distribution; building brand strength; product leadership, and an advantaged supply chain –- each has a direct impact on how we can help you to build your business.

"I’m not going to go into our progress in all of the seven areas today, but I would like to focus on a few.

"Let me start with the product. One of our highlights in 2004 was the success of the new Assurance line of tires featuring TripleTred and ComforTred technology. By the year’s end it was clear that Assurance was the most successful new product launch in the history of the company. But the impact of Assurance went well beyond the economic value of the sales. It energized our associates and revalidated the importance of the brand name to our customers.

"In 2004 we invested heavily to assure that every product we make meets the highest standards of quality. TBC played a critical role in this endeavor. TBC made sure that your concerns about product quality were heard. We listened and responded, and I thank TBC for that.

"Another reason to believe is having an advantaged supply chain. During the past two years I have learned that it’s easy to make the tire business complicated, which is why I try to remember a few simple things. Make great tires, at the right value and get them to the right place at the right time.

"In a moment, I will talk about the challenges of being a tire manufacturer in North America. There is no doubt that having a strong local supply chain is a competitive advantage.

"You can buy low cost tires overseas, but if the right size doesn’t end up at the right store at the right time, you won’t keep your customers for long.

"We are striving to have the best supply chain in the industry. It’s one element of being successful.

"We’ve made improvements in 2004, such as our focus on OTIFNE – orders being shipped On Time, In Full with No Errors. And 'no errors' might as well be 'no excuses.' We still have progress to make. As is the case with quality, when it comes to supply chain performance, it’s not what we think is right -- it’s what you think that counts.

"The last of the seven areas I want to talk about today is leveraging our distribution. In North America, we’re seeing significant changes in tire distribution, with streamlining of some existing channels…and consolidation of others. TBC as much as anyone, is playing a major role in these transitions. The private label tire sector is likely to be impacted as much as any segment by the ongoing changes in wholesale and retail distribution.

"In the face of these changes, I want to reiterate a position voiced by Bob Keegan at last year’s conference. Goodyear remains committed to the manufacture and distribution of high quality private label tires.

"It may surprise some here, but we actually gained share in the private label and associate brand tire market in 2004, despite a 15% annual increase in non-RMA member tire imports, primarily from Asia. We continue to see outstanding growth from those customers who can benefit most from a combination of Goodyear’s branded and private label products.

"No one should doubt our commitment to TBC. For more than 40 years we have been supplying quality tires to TBC and its customers. Last year we signed a 10-year extension to that agreement. And yet like all long term business relationships, ours with TBC has and will continue to evolve.

"We are dedicated to providing outstanding tires, from our own North American and global assets. We also will expand our ongoing third party production relationships in low cost countries where we can utilize our technological know how, supply chain capabilities and guarantee of TREAD Act compliance to provide customers additional value.

"Improvement in all seven areas has formed the backbone of our company’s performance in 2004. We’ve had a terrific year, we’ve come a long way, and we still have challenges ahead.

"Goodyear’s turnaround is clearly on track. Now I’d like to address the challenges of being a tire manufacturer in North America.

"Goodyear is a global company, based in America. While it’s clear that the company’s success is critically dependent on the North American unit that I lead, it is perhaps less obvious that Goodyear’s long-term prosperity –- or that of our North American business –- is linked to being a manufacturer of tires in North America.

"Today, I suggest that while Goodyear’s future may be independent of its American manufacturing base, a strong and successful manufacturing asset can be achieved in North America, can contribute to an even stronger Goodyear, and will be an advantage for our customers.

"One of the things that makes enduring success difficult for any business in any industry is a changing competitive environment. Your competitor today might be your partner tomorrow or they may be out of business. An area of expertise today may be an obsolete product or service in the future. The challenges are constantly shifting. Our own industry contains many examples of this constantly changing competitive environment. Consider that at one time the five largest manufacturers of tires in the world were all headquartered in Akron, Ohio. Of course, that’s no more.

"Just look at what American manufacturing has faced over the past 20 years. Many of our industries have simply gone away: textiles, furniture making, electronics. And others like steel and automobiles are being consolidated by foreign companies.

"So what happened? Did we lose our manufacturing know-how? Did we run out of technology? Did the labor pool dry up?

"No, none of these happened. Instead, the rules changed. Success started to be measured with a different yardstick. Newer, faster, cheaper competitors sprung up. A whole group of new competitive challenges arose.

"Now, we’re in the same sort of changing environment.

"In Asia, new tire plants are rapidly being built with state-of-the-art equipment. The workforce has a strong, positive attitude toward manufacturing jobs. I’ve seen it. Their pride is much like that of the American workers in the post-World War II economic boom.

"Overseas competitors also do not, by and large, carry the added costs of company-paid retirement programs and health care plans.

"With this surge in Asian manufacturing has come a huge demand for raw materials like oil, natural rubber and steel for both products that stay in Asia, and those that are exported. We have all seen what kind of impact this has had on commodity prices.

"There is no doubt that the rapidly changing competitive environment is creating challenges for North American tire manufacturers.

"Companies are and will be made or broken by how they respond to these kind of challenges in both what they do and how fast they do it.

"Even for most successful companies, leading change is difficult and often comes as a reaction. A lot of companies talk about change, put inspirational words in mission statements, and hand out copies of 'Who Moved My Cheese?' But change is uncomfortable. There are few 'embracers,' many 'fence-sitters,' and a few pesky 'resistors.' So real change often comes as a last resort…as a response to dire circumstances.

"But the great companies drive change before facing adversity. They’re the ones ahead of the curve. They’re the ones that evolve faster, drive harder and push and engage their employees every day. Football coach Bill Parcells is fond of saying that 'winning isn’t a some-of-the-time thing, it’s an all-of-the-time thing.'

"So faced with rapidly expanding low cost overseas competition, how do we win in North America? I believe the answer lies in three areas, what I call the “change drivers”.

"Innovation, productivity and speed and utilizing these change drivers to add value to our customers -- and ultimately to your customers, the consumer.

"First, we must innovate faster than anyone. We must try to de-commoditize the tire industry. The race can’t be about who can make a 13-inch tire at the lowest cost.' Rather, it should be a race that will be won by those who can innovate and provide new products and features and get them to customers the fastest.

"Focusing on the speed of innovation will allow us to leverage the inherent intellectual talent that is available in American universities. That means more investment in R&D.

"We must embrace and lead rapid changes in the product, which means more sizes and types of tires. It means increased performance and new ways to measure that performance.

"We’ll look at ways to use technology to make advancements in manufacturing and design, but we’ll also drive change with advancements in non-traditional areas, such as RFID, innovative tire-pressure-monitoring systems such as Tire IQ, new runflat developments, and new systems to track deliveries and inventory.

"Utilizing our market leadership with both OE automotive and truck manufacturers, we will look for new and innovative ways to link the tire’s performance to the vehicle.

"To be successful we will multiply the impact of our own technical capabilities by partnering with global leaders in the fields of materials, electronics and engineering with companies like GE, DuPont and Siemens.

"We will continue to build on our unique relationship with Sandia National Laboratory, home of the best computer minds in the world, to develop tire algorithms that will allow us to create and test new products right on the computer, ultimately reducing new product development times and significantly lowering R&D costs.

"And finally, we’ll look beyond the tire industry to applications of technologies and best-practices that are currently used in other product and service industries to assist consumers at point of purchase.

"The second area we have to focus on is productivity. A few weeks ago, the Sunday New York Times ran a great story about Dell Computers. They’ve grown from a small business that Michael Dell ran out of his dorm room at the University of Texas to one of the market leaders.

"Dell is committed to manufacturing its products in the United States. But thing in the story that got my attention was their level of expectations. The bar is set so high that they look for ways to change on every shift, every day.

"Where most companies would be happy with a 5% or 8% or 10%increase in productivity, Dell wants to double its productivity. Double.

"Dell is serious about it. It’s not just some wild goal. Their attitude is one that drives change. If you expect usual results, you get the usual solutions. If you expect extraordinary results, you push your entire company to look at things completely differently. You have to be willing not only to entertain radical ideas, you have to embrace them.

"We have to become fanatical about productivity, and that all starts with people. Goodyear is the largest employer of Steelworkers in the country, and the contract we negotiated in September 2003 provides a framework for new approaches to productivity. But to succeed, we have to throw out the 'old thinking' that has led to the demise of other American manufacturing industries. The 'enemy' is not the union or management. Success will not be defined by which side 'wins or loses' in a contract negotiation.

"Many people mistakenly think that the problem with American manufacturing is the high wage costs we have compared to third world countries, but I believe this is incorrect. High wages are in fact a healthy sign of developed countries whose gross domestic products are driven by consumerism.

"But we can only afford high wages if we have the highest productivity in the world -- just like Dell computer.

"We must relentlessly root out some of the malaise that has crept into American manufacturing in the last 20 years: high absenteeism, abuse of the workers compensation system, too much dependency on overtime, a lack of training, inefficient and overly complicated work rules, and anything less than a total commitment to quality and workmanship.

"To accelerate the pace of productivity, we are implementing tools and processes, like Lean and Six Sigma, which have been proven to increase efficiency by the best manufacturers around the globe.

"As I said before, I fervently believe that with a focus on innovation and productivity at speeds greater than we have ever imagined, we can win in tire manufacturing in North America.

Innovation, productivity and speed. These are things we can control on our own. Sure, I would be delighted to suggest some things that others might do to help us in North America: health-care and pension reform, a market based currency exchange with China, enforcement of the Tread-Act legislation to name a few. But in the end we can’t count on others to solve our problems.

"At some point – whether it’s in business or life -– you’ve got to decide who you are. And it’s not who you say you are. It’s how you behave every day. It’s consistency. It’s a clarity of vision, a purpose.

"We can’t -– and won’t -– be all things to all customers. In our North American factories, we’re not going to be the lowest-cost manufacturers of tires in the world. As I mentioned earlier, we’ve seen the impact of imported low-cost products on other industries. I assure you that if the tire business turns into a price-only game, not only won’t we win, we won’t even play.

"But I don’t think it will come to that, and I assume none of you do either. So our bet will be with value. As American manufacturers, it is incumbent on us to have better products with a greater value proposition.

"At the end of the day, we must distinguish ourselves in value. I talked earlier about Bob’s 'Seven Reasons to Believe,' but if there were an eighth reason, it would be just that: 'unmatched value.' And this applies to every tire we make, whether it says Goodyear on the sidewall or not.

"When I joined Goodyear, almost five years ago now, I was presented with a book entitled The Legend of Goodyear, the First 100 Years. I find the most fascinating parts of that book to be those that describe how the company dealt with adversity, whether it was the Great Depression, World Wars, take-over attempts, or disruptive technologies like the transition to radial tires. And in those periods of great challenge, Goodyear associates have always risen to new levels of success.

"So has TBC. Its leadership used 50 years of strength in the wholesale business to help shape its own future, becoming a force in retail while continuing to supply its wholesale base with the products and services needed to be successful.

"With the rapid globalization of tire manufacturing, we in Goodyear North American Tire are faced with a new adversity. But like those before us, I am confident that this generation of Goodyear associates is up to the task.

"We’re confident in our strategies. We’re embracing the opportunity to drive change and enhance the value of our products in 2005."