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Goodyear Wants to Be No. 1 Again With a radical new tire and a bold global expansion program, the 100-year-old company plans to reconquer the market. But will its stodgy, inbred culture get in the way?
(FORTUNE Magazine) – Here's a quiz about tires: What brand do you have on your car? When was the last time you bought one? And finally, when was the last time you even had a flat tire? If you're like a lot of people, your answer to all three questions will be a blank, baffled stare--which just about sums up the tiremakers' dilemma: People don't give their products much thought. Tires are so well engineered these days they rarely fail, and they are pretty close to the ultimate commodity: round, black, and unremarkable. The folks at Goodyear Tire & Rubber in Akron--who got started in the tire business exactly 100 years ago--have begun to take consumer apathy as a personal challenge. They don't want you ever to forget that those four little patches of rubber connecting your two-ton SUV to the road are your last margin of safety. And to convince you that you should want Goodyears on your car instead of one of those other brands, the company is pouring millions of dollars into research and development, new- product marketing, and breakthrough manufacturing techniques. In the process, Goodyear is looking to transform tires into a high-margin, fast-growing business--everything it isn't now. The man fomenting this revolution is one unlikely Akronite: Samir Gibara, 59, Goodyear's chairman, CEO, and president. Gibara was born in Egypt to Lebanese parents and is a citizen of France (he holds a green card to work in the U.S. and has applied for citizenship). He was chosen to run the company by Stanley Gault, who began Goodyear's turnaround in the early 1990s. Gibara's ambitions for the company are huge. He wants sales in existing markets to grow at double the industry's 2% to 3% rate. He aims to expand Goodyear's profit margins by 25%. And with a push from acquisitions, he hopes to boost revenues to as much as $23 billion by 2003, up from $13 billion in 1997. Today, Goodyear ranks third among the world's manufacturers, behind France's Michelin and Japan's Bridgestone. In just three years, Gibara aims to vault into first place. Gibara's ambitions have impressed some keen observers, and they give him a fighting chance of success. Says Saul Ludwig, a Cleveland-based analyst with McDonald & Co.: "Sam isn't sailing into this with delusions of grandeur. He's extremely strategically oriented. My work suggests they can do it." Veteran analyst Wendy Needham of Donaldson Lufkin & Jenrette agrees: "I think they have a reasonable shot of getting what they want." Gibara's strategy for becoming No. 1 depends on three key elements. First is Goodyear's innovative new "run-flat" tire, just now being rolled out (we promise, no more tire puns). Second is an aggressive plan for international expansion. Finally--and perhaps most daunting of all--the continued reengineering of Goodyear itself, a company that still does more than a few things the old-fashioned way. None of it will be easy. The tire business is big--$70 billion in worldwide revenues--but generates skinny profits, and it's growing only 2% to 3% per year in North America. Staying ahead of the market is all but impossible because tire technology hasn't changed much since the invention of the radial tire in 1946, and competitors knock off each other's new tire designs in 12 months. "I can't think of an industry I'd less like to be in," says author and consultant James P. Womack, president of the Lean Enterprise Institute in Brookline, Mass. "What has been more of a hellhole than tires?" That's why the new run-flat tire is so crucial. This April, Goodyear will launch what it calls the biggest breakthrough since the radial. For years, Goodyear and its rivals tried to develop a self-sealing tire that wouldn't lose air after being punctured. Goodyear's new model works on the opposite principle: It is designed to let the air out but retain its shape--thanks to new steel cords that hold the tire rigid even with zero air pressure--and to keep rolling for 50 miles at 55 miles per hour. (In a brief test at Goodyear's Akron proving ground in February, the tire performed as advertised with no noticeable change in ride or handling.) Goodyear doesn't quite have the field to itself (Michelin makes what it calls a "zero-pressure" tire) but Goodyear has erected a barrier of patents around its design to keep other manufacturers at bay. Gibara also plans to make full use of his international experience by beating his competitors around the globe to new acquisitions and strategic alliances. Goodyear already gets $3 billion in sales from China, India, the Philippines, Poland, and South America--and Gibara is looking for more. In addition to the potential boost in revenues, the acquisitions make strategic sense because Goodyear could shift production to lower-wage countries. Labor accounts for about a third of a tire's factory cost, and Goodyear claims $11-an-hour workers in Slovenia and $18-an-hour workers in Mexico are every bit as productive as $32-an-hour workers at home. Speaking with the precise syntax of someone for whom English is not a native language, he puts his vision thus: "In the last seven years the world has changed completely, with the collapse of communism and the growth of market economies. This is a unique opportunity." To make the numbers, though, Gibara will have to reinvigorate Goodyear's cautious culture. That may be an even more challenging task than increasing sales by 75%. As Ludwig observes: "The company has developed its management all from within. All of the operating people have spent their entire careers there. Whether bright lights and vivid colors will ever come to the halls of Goodyear, you never know." For 75 years of its existence, Goodyear didn't have to worry about bright lights: It was the undisputed leader of the global tire industry. But it lost its way in the 1980s when it tried to diversify by spending $1.6 billion on an oil pipeline. That blunder was followed by a takeover bid by raider Sir James Goldsmith; Goodyear took on $3.7 billion in new debt to fend him off. Thus encumbered, it watched from the sidelines as foreign competitors assaulted its home market. France's Michelin bought Uniroyal, the sixth-biggest U.S. producer, and Goodrich, the seventh, while Japan's Bridgestone gobbled up No. 3 Firestone. Goodyear was still stumbling when Stanley Gault was recruited from its board to take over as CEO in 1991. Gault, who grew up in nearby Wooster, is the former GE executive who produced a remarkable record for product innovation and revenue growth at Rubbermaid, where he was CEO from 1980 to 1991. Around Goodyear, he is known as the man who saved the company. He sold assets, paid down the debt, raised $600 million in new equity, and restored morale. He also introduced Goodyear to modern marketing by christening the "Aquatred" tire in 1991 and making it a huge hit. Gibara had joined Goodyear in France in 1964 as a management trainee, after attending Cairo University and getting his MBA from Harvard. A Goodyear lifer, he spent the first 25 years of his career abroad, with time out for a two-year stint at International Harvester. Gault discovered him when Gibara was vice president of Goodyear Europe and brought him to Akron in 1992 as strategic planner. "Sam is very intelligent, a good administrator, has in-depth knowledge of the tire industry, and is a team player," says Gault. "I really identified him in the first 90 days I was there." After holding several other top jobs, including head of North American operations, Gibara succeeded Gault as CEO at the beginning of 1996. Gibara has continued cleaning up the balance sheet. In late March he finally unloaded the ill-fated pipeline company for $420 million. But he has yet to produce a kick in revenues, which have remained flat since 1995. Wall Street has been appreciative, though not ecstatic. Goodyear stock is up 74% since he took over, vs. 78% for the Standard & Poor's 500. But visit Goodyear's Akron headquarters and you wonder whether this is a company ready to challenge the Michelins and Bridgestones of the world in the 21st century. The building itself was carved out of an old tire factory, and moving rubber walkways (made by Goodyear and never commercially successful) transport visitors between floors. The executive wing, resplendent with leaded-glass windows, floor-to-ceiling wood panels, and thick green carpeting, evokes an elite but slightly musty country club. So do the executives: predominantly middle-aged white men, most of them Goodyear lifers. They sit like South American dictators behind giant desks, some flanked by flag stands. The Goodyear motto--in raised letters over the portal to the chairman's office--reads "Protect our good name." More to the point, some of Goodyear's manufacturing processes carry a noticeable whiff of age as well. Integrated manufacturing has long been out of style, but Goodyear still grows rubber on two plantations in Indonesia, makes its own steel cord, and distributes the finished product through its own nationwide network of retail stores. It sells 10% of its tires to auto manufacturers but makes little profit on the business because it is so competitive. And Goodyear lavishes millions each year on racing programs that have few identifiable benefits and plenty of potential for embarrassment. Recently Indy car racer Bobby Rahal noisily blamed Goodyear for his poor track performance when he switched over to Firestones. Gibara's grand plan for reengineering Goodyear starts with a foundation of operational improvements: faster product introductions, lower overhead, better distribution. The goal is to increase productivity up to 6% annually, twice the industry rate. But, as Gibara is the first to point out: "The problem with these strategies is they don't give you a sustainable competitive advantage. Our Aquatred tire was a big hit, but all our competitors were selling one in 18 months." Gibara thinks the solution lies in manufacturing and technology. Goodyear claims to lead its competitors in two key areas: synthetic rubber and steel. In February, Goodyear announced development of a steel cord that is 40% stronger than the wire now used in steel-belted tires. The new cord is thin enough to be used in the body of the tire as well as in the sidewalls without compromising ride quality, paving the way for the new run-flat tire. The next level of Gibara's strategic initiative is a new manufacturing system that he calls Impact. Tires are typically made on an assembly line that can stretch as long as six-tenths of a mile, with hundreds of feet of conveyors moving them from one process to the next. Through automation, Goodyear hopes to eliminate half the intermediate steps, reduce floor space by 25%, improve uniformity, and reduce labor costs by 35%. If it works, the system could be installed in any of Goodyear's 85 tire plants worldwide. "We're going to push this just as hard as we can," says William Sharp, the company's No. 2 executive, who holds the title of president of global support operations. "Will it challenge the organization? Absolutely." The manufacturing organization already looks pretty fit. A brief inspection tour of Goodyear's Napinee, Ontario, plant revealed a cleanliness, efficiency, and lack of waste that rival Japanese standards. The non-union workers--who get about $18.75 an hour in wages and benefits, following a six-month application process that admits only one in 20 job seekers--were so uniformly upbeat they seemed to be auditioning for The Stepford Wives. Although Goodyear is confident Impact will give it an edge, it can't be sure. Even routine details about its competitors, such as the number of workers per plant, are jealously guarded. For instance, industry consultant Les Artman of Mercer Management, while advising another tire company on logistics, says he wasn't even allowed to see its plants. So while Michelin has already deployed a new manufacturing process called C3M, it is hard for Goodyear to know what it is competing against. If Goodyear's manufacturing seems focused, its retailing strategy remains diffuse. For years Goodyear sold tires through both company-owned and independent dealers. But the independents began undercutting Goodyear with cheaper brands, and both groups neglected tires in favor of more profitable services such as oil changes and tune-ups. Relations deteriorated further after Gault decided to sell Goodyears through mass merchants like Sears and Kmart. The number of Goodyear-owned outlets declined from 1,400 to 850. "Retail has been part of our distribution," says Gibara, "but Goodyear is not a retailer. The jury is still out on whether we will continue to be." Fixing distribution is just one step toward winning respect from customers. What the company needs are new ideas about how to make people care about tires. Unlike Michelin's long-running baby campaign, Goodyear's marketing sometimes seems to begin with racing and end with blimps: It just added three more airships to float over Europe and South America at a cost of $9 million annually. But while a headlight manufacturer can expand its charter by selling a system that includes reflectors, lenses, and frames instead of just bulbs, that's not an option for a tiremaker. Goodyear can't logically incorporate wheels, brakes, or suspension into its tire designs. True, a tire does occupy a vitally important interface--literally where the rubber meets the road--but it is difficult to see how that role can be expanded. As consultant Womack points out, "I have so few problems with my tires, I don't need to get into a lifelong relationship with my tire retailer." Run-flats may change that. The clear customer benefit is safety--no more changing tires on dangerous highways or late at night. But the run-flat can also be promoted as an environmental product: It eliminates the need for a spare wheel and tire, saving about 30 pounds of gas-sucking weight. Run-flats are already offered on two space-challenged, limited-production cars--the Chevrolet Corvette and the Plymouth Prowler. They aren't cheap: They could cost about $75 (vs. $60 for the average tire) and require a $100 sensor system to tell the driver when the tire has gone flat. But initial reactions are favorable. Says analyst Needham: "I'd buy them, and I expect them to sell very well." If Goodyear needs any lessons about how to market the run-flat, it need only harken back to the words of Stanley Gault. "People ask me, 'How do you think you can get more money for a tire, when a tire is a tire?' " said the former CEO in a recent interview. "My response is: When they know what this tire can do for them, why wouldn't they?" Gibara's challenge, and Goodyear's, is to make people know--and to make them care. |
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