Generally increasing sales revenue since 1991
Dealer contracts that my be inhibiting Internet sales
Sales declines in Europe, Asia, Latin America
New international markets: China, India, Russia
New international markets: Internet sales
Size still matters and Goodyear has size. Its 1999 sales were $12,881,000,000 representing a one-year sales growth of 2%. Its net income was $241,000,000, a lot of money but a decrease of 64.7% from one year earlier. Despite that drop in net income, Goodyear paid a $.30 dividend. Its net income also beat Wall Streets expectations. It has become the world leader in tire sales as a result of its alliance with Japans Sumitomo Rubber Industries. Goodyear ranks No. 130 in Fortune Magazines 500 list of large companies.
Its product diversity includes the manufacture and sale of tires, industrial and consumer products from rubber including belts, hoses, and tank tracks, and a wide range of synthetic rubber, resins, and organic chemicals. Goodyear supplies tires to European and North American auto manufacturers and construction and agricultural equipment manufacturers. Good year operates more than 900 retail tire outlets that also provide auto repair services.
If you want to buy American, this is the company. Despite its world-wide presence, Goodyear is an American company. Like many American manufacturers, though, it has extended its reach to include international markets in order to stay ahead of its competition. It has more than 90 facilities in 30 countries, and world-wide marketing operations.
Two attributes that any company desires are brand recognition and brand loyalty. Goodyear enjoys both. Its blimps are one of the worlds most recognized advertising symbols. For 1999, it ranked No. 1 in six of eight categories to lead its industry in Fortunes Most Admired List. Leadership categories included quality, innovativeness, employee talent, social responsibility, financial soundness, and long-term investment. Of these, quality is probably the most important in creating and keeping brand loyalty.
Its P/E ratio is 15.95, a very conservative number when compared to Internet stocks, which frequently have P/E ratios of 50 or more. The industry (rubber/plastics) P/E ratio is 13.65 while the broad market (8,000 stocks traded on the NYSE, AMEX, and NASDAQ, has a P/E of 39.46.
Another strength is its intangibles, which include a 100,000-person workforce, patents and trademarks. Goodyear owns 2,903 patents and five trademarks (Goodyear, Hi-Miler, Viper, Vintner, and Allegra).
As indicated previously, size matters. Size can be a weakness, though, as well as a strength. In 1999, Goodyears sales were down from 1998 in the Eastern Europe, Africa Middle East market, Latin America market, Engineered Products market, and Chemical Products market. The stock price dropped from a 52 week high of $66.75 to a February 15 close of $24.25. Its EPS (earnings per share) growth dropped 64.7% over the last 12 months. This is a company in trouble. The question is will its size inhibit its recover? Large companies like Goodyear are often compared to aircraft carriers. They need a great deal of time to turn around.
The Internet can be a weakness to many companies, not only Goodyear. Is Goodyear preparing to compete with the on-line sale of tires? Customers are no longer obligated to drive to the nearest tire outlet. A customer may go on-line and order a tire at the best competitive price, have it shipped to his home, and pay considerably less than he would at his neighborhood tire store. While Goodyear may see the weakness (and opportunity) here, it may be prohibited from using this tool because of its contracts with local dealers.
Because of a poor showing in 1999, Goodyears financial ratios have become a weakness. Following are some examples as culled from Hoovers On-line, The Business Network:
Price Sales 0.29 0.59 2.03
Days Sales Outstanding73.7754.3357.93
Inventory turnover 4.25.1 6.7
Days COGS in Inventory 85 71 54
Asset Turnover1.1 1.2 0.4
Net Receivable Turnover 5.4 6.7 6.3
In order to attract the capital necessary to grow, Goodyear must reverse its poor showing. In 1998, it announced a 3% reduction in its workforce (2,800 jobs).
Four areas present themselves for opportunities: new territories, Internet sales, innovations, and acquisitions.
New territories included China, India, and Russia. For the past several years, China has been encouraging capitalism in a somewhat of a hurry up/go slow fashion. With the spread of instant communication around the world, it has become increasingly difficult for totalitarian leaders to keep their subjugated populations from learning about the freedom and prosperity of the West. With the fall of communism in the former USSR and in Eastern Europe, Chinese leaders have begun to recognize more and more that granting economic freedom to more and more citizens may be the only way for the leaders to remain in power. As a result, China has been encouraging Western investment, and Western capitalism has responded in an effort to acquire a portion of a market that contains an estimated 1.4 billion people.
India also presents a large market in that it, too, contains a large population estimated at 1.2 billion. While Russias population is considerably smaller, it nonetheless, represents an open market with little in the way of competition.
While these markets present great opportunities for growth, they are represent danger. These countries do not have the reputation of Western democracies for enforcing private property rights. In Russia and China, the concept of permitting the four tools of production (land, labor, captial, and entrepreneurship) to be placed in private hands is new. These have been traditionally command economies, not demand economies.
As discussed previously, Goodyears lack of a presence on the Internet presents a weakness. It also presents an opportunity. Consumers are becoming comfortable with ordering an increasing number of items via the Internet. Goodyear is missing an opportunity by remaining off-line.
Goodyear continues to invest more than $300,000,000 per year in an effort to improve its present product line and create new products. One of its more recent popular inventions was the Aqua Tread tire, a tire that purportedly reduces the dangers of hydroplaning, the propensity that (light weight) cars have to slide uncontrollably over standing water.
Finally, Goodyear has grasped opportunities in foreign markets by either forming alliances with or acquiring its competition. Its most recent move in this area was the formation of a broad alliance with Tokyo-based Sumitomo Rubber Industries. The alliance created four geographical joint ventures (one in the U.S., one in Europe, and two in Japan), one joint venture for purchasing and one for sharing research.
Every human endeavor faces two threats: internal and external. This paper reported previously that Goodyear ranked No. 1 in six of eight categories in its industry as Most Admired according to Fortune Magazine. It appears, then, that it is avoiding internal threats. Based on its recent performance, though, an internal re-organization may be coming.
Externally, the company faces enormous competition:
Wholesale club stores (BJs, Wal-Mart, Sams Club)
Goodyear must continue to be effective (doing the right things) and efficient (doing things right) to maintain its leadership role and to survive in this extremely competitive market. Based on its 1999 performance, it may have let its guard down, but its long-term prospects continue to appear to be good.
Hoovers On-line Business Network
Goodyear press releases
Goodyear Annual Report (1998)
Strategic Management, Third Edition, Alex Miller,
Irwin/McGraw Hill, Boston, MA, 1998