In this MTD exclusive, tire industry analyst John Healy provides his thoughts on changes happening at Goodyear Tire & Rubber Co.
Healy is a managing director and research analyst with Cleveland, Ohio-based Northcoast Research Holdings LLC and writes MTD’s monthly Your Marketplace column.
On Nov. 15, Goodyear announced that Rich Kramer, its longtime chairman, CEO and president, will step down in 2024. The company also announced plans to sell its OTR tire and chemical businesses, as well as its Dunlop brand, and revealed that it’s looking to cut costs by $1 billion. Here are Healy’s comments:
On Rich Kramer’s retirement: “Rich has been there a long time, so it shouldn’t be altogether that surprising that at some point leadership is going to transition. I didn't view that as something that was out of left field. The asset sale stuff, I think, was a little bit different.”
On Goodyear trying to sell its chemical business: “I think there were some assets (of Goodyear’s business) – particularly retail - that people thought would have been easiest to remove or move on with. And that wasn’t one of the categories they chose.
“One of the categories they chose was the chemical business and admittedly, that surprised me a little bit because I’ve always kind of viewed the chemical business as core to tire making. But maybe you can do it in ways that are a little bit different and are less capital intensive? I think their thought is, ‘We can engineer and design the chemistry, but we don’t necessarily have to produce it.’ And maybe having someone (else) do the manufacturing of the chemicals and treat them as more of a sourced raw material than an internalized raw material … I think that's what they're thinking. They aren’t going to get away with a huge savings there, but maybe they're realizing they can do this in a more efficient way?”
On potential buyers of Goodyear’s OTR tire business unit: “There are a lot of good competitors in that business, large and small, and I think the view Goodyear has is, ‘It’s a good business, but it’s extremely cyclical, and maybe we're in a position where maybe our scale isn’t where we like.’ My sense is that they will probably have an audience. The question to me would be is, ‘Will the Goodyer brand for OTR survive or will they end up selling manufacturing capacity and R&D items and designs and the team?’ It will be interesting to see if the Goodyear brand goes with it. I think, over the ages, in tire industry consolidation and divestitures, you’ve seen assets sold, but names kind of shared. It will be interesting to see how that develops. I don't have a great handle on who would maybe be in and who would be out (as potential buyers) in that type of circumstance because I think it’s a pretty fluid situation. OTR wasn’t something I was hypothesizing in my head that was going to be likely sold. I thought things like automotive retail locations would be easier to separate and be monetizable.”
On if there’s a tiremaker that might be in a good position to buy the Dunlop brand:“I’m not sure there’s a tiremaker in the U.S. that would be, but I think the Dunlop brand carries good weight in the middle of the globe – in Europe and the Middle East and Africa – so I’m sure there are manufacturers over there who would view that as accretive to their portfolio. In a sense, what Goodyear has shared with the investment community is that they’ve seen good interest in these assets. For a public company top go out and say, ‘These are the assets we’re hoping to sell and we expect minimum proceeds of $2 billion,’ that’s a pretty strong statement to make. So my view is they’ve had some preliminary talks with interested parties.”
On whether Goodyear’s $1 billion cost cutting effort is achievable: “I would say $1 billion in cost removal is an aggregate number. It’s by the end of 2025, that's what they’re hoping to accomplish. They’ve kind of laid out the broad gamut of things that's going to contribute to that - whether it be people, whether it's supply chain dynamics, whether it’s optimizing the footprint. Recently in the last two months, they’ve announced restructurings in Asia and EMEA. Goodyear’s always been one that’s gone after cost reductions and I think they're saying it again. Will these cost reductions actually show up in the numbers? I hope so. I can’t say it’s always been easy to identify them because so much always changes in this business, but I think when it comes down to realigning your supply chain, your footprint, purchasing and your people, yeah, you can take a lot of cost out. It’s a big company.”
On possible brand repositioning: “I wouldn't be surprised if Kelly gets a bit revitalized in this process. I've noticed (through) checks that we’ve done that Walmart is starting to promote and push the Kelly brand. Walmart’s an awfully important partner to Goodyear, so I wouldn’t think Walmart’s doing that without Goodyear communicating that Kelly’s going to be part of how (it goes) ‘good-better-best.’”
On if there will be changes in Goodyear’s Americas region management team: “I think a lot is to be determined by that person who’s going to be the new CEO. How this cost reduction effort is implemented, how the business is organized – those are going to be things that I think will be owned by the new CEO. I think the board and the investment group that’s kind of trying to bring about change here - I think they have ideas. But the path to implementation, I think, will be set by the new CEO. I wouldn’t expect any of that stuff until a new CEO is brought in and at that point, puts his or her fingerprints on how this is actually going to be run and implemented, going forward. I don’t think (changes will happen) anytime soon. From my understanding, Rich (Kramer is still) the CEO and chairman. I don’t think (his) role, influence or decision-making power have diminished. My sense is he’s probably using his board – the board he’s a member of – to lay the groundwork for whatever who comes in to be successful.”
On possible changes to Goodyear’s board:“What I’ve seen with the Elliott (Investment Management)-Goodyear relationship since the middle of May, when it came to light – I've seen the parties work together quickly and make changes in a four-to-five-month timeframe that typically I’ve seen take a lot longer in other situations. I have no reason to think anything dramatic is going to be shifted on the board. I think Elliot and Goodyear have probably worked more in partnership than adversarially in their approach to one another.”