Goodyear's business deflation explained by tire industry expert
Goodyear Tire & Rubber Co. is closing out 2023 by making major changes to shrink its size and focus on core businesses. Tire industry analyst John Healy, recently spoke with Fleet Maintenance’s sister publication, Modern Tire Dealer, more in-depth about what the iconic Akron, Ohio-based tire maker's current deflation strategy means. These include divesting its Dunlop brand, as well as its Off-the-Road (OTR) equipment tire and chemical businesses. The "portfolio optimization" was estimated to yield $2 billion in gross proceeds, the company said. Goodyear's Chairman, CEO, and President, Rich Kramer, also announced he would step down in 2024.
Healy, a managing director and research analyst with Cleveland, Ohio-based Northcoast Research Holdings LLC, reported that these unexpected changes could be an attempt to encourage greater efficiency. They could also be the result of friction with one of Goodyear’s largest investors, Elliot Investment Management, an investment firm and activist fund which represents a 10% economic interest in the tire producer since May 2023.
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Selling the chemical and OTR tire business
According to Healy, Goodyear’s sale of the chemical and tire equipment businesses is one of the company’s more surprising developments, as he typically viewed the chemical business as integral to tire production.
“I think their thought is, ‘We can engineer and design the chemistry, but we don’t necessarily have to produce it,’” Healy said, adding this would allow Goodyear to treat the chemicals for their tires as more of a sourced raw material instead of an internalized one.
While the choice isn’t likely to lead to huge savings, Healy did note that it could lead to greater efficiency. And the additional funds can’t hurt either, although the company shouldn’t be short of buyers for their OTR business, either.
“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,’” the research analyst stated.
But while it shouldn’t be difficult to sell the OTR business, it does leave the overall survival of the Goodyear OTR brand in the air, too, especially if the company sells their manufacturing capacity, R&D items and designs, and the overall team in one go.
“It will be interesting to see if the Goodyear brand goes with it,” Healy noted. “Over the ages, in tire industry consolidation and divestitures, you’ve seen assets sold, but names shared.”
Whether or not that will be the case for Goodyear remains to be seen, as the situation is still relatively fluid and unexpected.
Goodyear leadership changes
Healy also noted that Goodyear’s business and personnel developments are likely to be influenced by the incoming leadership, as the board and Elliot Investment Management can largely ideate, but the CEO will handle implementation.
“From my understanding, Rich [Kramer is still] the CEO and chairman,” Healy explained. “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 whoever comes in to be successful.”
How Kramer’s departure will impact relations between Elliott Investment Management and the tire producer is also still developing. In May, Elliot claimed that Goodyear’s stock is underperforming, leading to the organization pushing for the appointment of five new Board members and the formation of an Operational Review Committee. In July, Goodyear and Elliot mutually agreed to bring on three new Boardmembers from CSX Corporation, Crane Company, and Tenneco.
“What I’ve seen with the Elliott-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,” Healy noted. “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.”
Despite these developments, Goodyear has continued to release new products and acquisitions over the past several years. In Feb. 2021, the company acquired competitor Cooper Tire & Rubber, and in 2023, Goodyear added a new Cooper Regional Haul Trailer 2 tire and the EV-compatible Rangemax RSD tire.
