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.

Turnaround strategies

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.

SWOT ANALYSIS

Internal Analysis:

                          Strength

                          Weakness

External Analysis:

                          Opportunity

                          Threats

Strengths:

Goodyear’s management

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.

Innovation:

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

Weaknesses

High operating costs

Having operations not related to the tire business.

High debt

External Analysis

Opportunities

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

Threats

Product unavailability

Need to produce lower priced tires

THE ARCHITECTURE OF STRATEGY

Goodyear’s Perspective

Organizational Capacity

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

Enterprise Synergy

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

 Structural Position

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

They were

Goodyear Quality Improvement Program

Goodyear’s Quality Principles

Goodyear’s Competitive Advantages

Introduced brand new lower priced tires:

Run Flat Tires-Customized version for Chevrolet Sports car

Goodyear EMT(Extended Mobility Tire)

Just Tires

Became more profitable business by cutting down cost & improved operating performance, boosted overall quality production & reducing debt

 Financial Performance

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

 Financial Performance

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.

Financial Performance

 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.

 RECOMMENDATIONS

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