Overview of Goodyear
The Goodyear Tire & Rubber Company was founded in 1898 by Frank Seiberling.
It is the only remaining large American-owned tire company, one of the largest Tire Company in the world
Its product became popular because they were easily detachable and low maintenance
Gault’s Years: Background
Stanley Gault, appointed CEO in 1991 when Goodyear was in a severely damaged position.
The company had experienced its first financial loss in 58 years.
Company‘s million-a-day debt service charges had placed Goodyear to the verge of bankruptcy
Gault’s 12 objectives for the 1990s
Porter’s Five Forces Model of Competition
PORTER’S FIVE FORCES
Threat of new entrants: The market is at a mature stage, but the entry level is fairly low
Degree of Rivalry :high.
Tires are sold almost everywhere.
Bargaining Power of Suppliers: high.
Tires are a necessity
Bargaining Power of Buyers: relatively low.
With the nature of the competition in the industry, the top firms are doing everything possible to get advertising space from retailers
The threat of substitutes: high
There are many tire companies to choose from
Gault’s Initial Strategy
Gault contends that his strategy for Goodyear will center on two objectives:
1. Reducing debt
2. Cutting costs
At the same time, he said, Goodyear will refocus on its basic strength: Tires.
In Turnaround strategies,
cost cutting is rarely sufficient and price increase often play a major role.
Sustained premium pricing for a product, however, only works when customers place premium value on product attributes. Identifying the optimum bundle of product attributes requires a strong understanding of the market.
When Gault became CEO, he implemented a flatter structure with fewer layers and changing the culture involving everyone in the organization and returning to the basic concepts of reducing costs, identifying corporate assets to sell in order to reduce the 3.7 billion dollar debt and going to customer-oriented tire manufacturing operation.
Aquatred,a brand new wet traction tire Goodyear’s TQC program: sales increase due to initiatives on new product development
New international markets:In China, Goodyear started journey as Goodyear-Dalian joint venture program In India, they started with CEAT
High operating costs
Having operations not related to the tire business.
To go overseas where it will be less to produce and manufacture goods
Create more joint ventures -Goodyear noticed that in order to capture a large market share they must have distribution centers
Need to produce lower priced tires
THE ARCHITECTURE OF STRATEGY
First year Leadrship,Gault saved $135 million between 1991 earnings & a loss in 1990
Debt was reduced by approximately $ 1 billion
Gault restructured management & totally changed organizational culture
Generating consistent earning growth & delivering high value-added products to the customer
Marketing strategy was paying off
In 1994,Goodyear was third among the world leaders in new tire sales
Annual stock dividend was increased to $ 1.00 per share form 40 cents
Goodyear launched the Aquatred, a tire with a distinctive-looking groove placed down the center for wet traction.
This was popular for its lower price version for more price conscious consumers
Goodyear introduced variety of tires which was longer-tread life warranty
Gault emphasized on R&D to quality products & services i.e. Product development
51 % of Goodyear’s tire sale increased because, Gault has placed in new product development
All these product development programs of Goodyear were by Gault’ TQC Program
Goodyear Quality Improvement Program
Goodyear’s Quality Principles
Constant improvement in products & services to meet customer’s needs
Goodyear’s Competitive Advantages
Introduced brand new lower priced tires:
Run Flat Tires-Customized version for Chevrolet Sports car
Goodyear EMT(Extended Mobility Tire)
Became more profitable business by cutting down cost & improved operating performance, boosted overall quality production & reducing debt
Financial Analysis (dollars in millions)
Profit Ratios Gross Profit Margin = (Sales – COGS)/Sales = 24.6%
Net Profit Margin = Net Income/Sales Revenue = 4.6%
Liquidity Ratios Current Ratio = Current Assets/Current Liabilities = 1.41
Quick Ratio = (Current Assets – Inventory)/Current Liabilities = 0.85
Activity Ratios Inventory Turnover = COGS/Inventory = 6.51
Leverage Ratios Debt-to-Assets Ratio = Total Debt/Total Assets = 0.69
Debt-to-Equity Ratio = Total Debt/Total Equity = 2.25
This financial analysis shows that Goodyear is in good financial standing
The company is making enough sales revenue to cover general and administrative expenses and other operating costs, as well as make a profit in the end.
This is demonstrated by the profit ratios above. Goodyear is also well able to meet its short-term obligations.
As the liquidity ratios show, the company could quickly convert enough assets into cash to cover the claims of short-term creditors.
The inventory turnover may need to be increased so that they are not carrying that amount of excess stock in inventory for so long.
The leverage ratios show that Goodyear is highly leveraged by using more debt than equity.
This shows a solid capital structure for the company.
Goodyear is a company that has been through some really rough times.
The industry that Goodyear is in is a competitive one in that they have to keep pumping money into R&D to stay on the cutting edge and keep providing a competitive product to the market.
Gibara had been vice president of strategic planning and business development as well as CEO.
The company is on the right track now and needs to keep the same focus to stay successful.
However, Goodyear will have to invest more in the global market in order to maintain its profit growth and to maintain its competitive edge.
Furthermore, Goodyear needs to continue to provide excellent customer service by providing what the customers want. It is good to have a great leader and we believe that Gibara has the background