A New Spin For Goodyear

Reflated and financially repaired, Goodyear is going tread-to-tread against rivals Michelin and Bridgestone for world market supremacy-just as its charismatic leader, Stan Gault, is handing the controls over to his successor.

December 1 1995 by JP Donlon


New CEOs always leave their mark on companies in the midst of a turnaround. Among his many changes at Goodyear Tire & Rubber, Stan Gault ordered the Goodyear blimp to be repainted from its traditional black and silver to blue and gold, his high school colors. He also changed the logo to read “Goodyear #1.”

One Goodyear “associate”-as employees are called-thought the new chairman and CEO had gone too “I was convinced far. “Who the hell do you think you are, changing that with things that have been that way since 19272″ the employee wrote in an angry letter to Gault.               

Gault smiles as he recollects the incident. “I called the guy on the phone, and I asked him one question: Just who do you think I have to be’”

The blimp is not the only thing that bears Stanley C. Gault’s mark at Goodyear Tire & and CEO of Rubber, the $12.3 billion Akron, OH-based tire maker. When he reaches his 70th birthday in January, Gault is expected to hand over the chief executive title and a much healthier enterprise to Sam Gibara, Goodyear’s president and chief operating officer, and Gault’s handpicked successor. Gault himself may hold on to the chairman’s title and serve as a roving ambassador to customers and the financial community.

In June 1991, Gault was brought in by a worried, impatient board. Five years earlier, to fight off a hostile takeover by Sir James Goldsmith, the company had sold off its highly profitable aerospace division to Loral for $988 million and had taken on $3.8 billion in debt, largely to finance a $2 billion stock repurchase plan. The company’s debt-to-equity soared to 70 percent from 30 percent. Concerned that then-CEO Thomas Barrett wasn’t moving fast enough to repair the situation, a frustrated board turned to Gault, who twice before as a Goodyear director had turned the job down. He was credited with converting Rubbermaid, a company his father co-founded, from a mildly successful manufacturer of plastic products into a world-class performer. Earlier, Gault had earned a reputation as a controller of costs and a champion of quality at General Electric, where he had spent 31 years in marketing and management. He left in 1979 when he was passed over in favor of Jack Welch for the top job. Three weeks after Gault retired from Rubbermaid, he took the Goodyear job.

As might be expected, Gault’s turnaround plan called for lopping off non-core assets, reducing debt, and improving operating efficiencies. He set about reconfiguring the company into eight autonomous strategic business units, each divided along product lines. But insiders say his most important contribution may have been lifting spirits in a demoralized company (see “12 Objectives For Managing Goodyear In The ’90s’). The company had barely held on to its status as the only remaining U.S.-owned tire maker.

Those who have known Gault since his GE days have characterized him as a good listener with a simple, open leadership style. Gault himself is fond of saying that “if you wait to hire someone before he or she is completely qualified, it’s probably too late.” He maintains he empowered people long before the term came into usage. The Wooster, OH-born CEO is a firm believer in “stretch “-pushing people to achieve goals that appear to be just beyond their reach. For example, the Egyptian-born Gibara, 56, who speaks French and Arabic, as well as English, was promoted four times in three years. Having spent 29 years with Goodyear, mainly in international jobs, he has a strong grasp of the global tire business-something Gault did not have when he came on board.

Gault has set an impressive record in his 41/2 years at Goodyear. The compound annual growth rate of earnings-per-share before extraordinary items and accounting changes from 1991 through 1994 was 82.2 percent. The compound annual average income growth from continuing operations before extraordinary items during the same period was 96.7 percent. Gault set up new distribution channels that expanded the company’s reach through outlets such as WalMart, Sears, Kmart, Montgomery Ward, and Penske Auto Centers. He established a site on the Internet for customer referrals.

With the balance sheets cleaned up and Goodyear tires available in more places where people buy them, Gault claims the company can grow at double the industry rates.

Joint ventures in China and Poland are part of a continuing scheme for opening up markets both for original equipment and the all-important replacement market (see chart). Last year, more than 40 percent of revenue and 45 percent of unit sales were derived from non-U.S. sources. Over half the company’s operating income comes from international operations. Gibara will have his hands full when he assumes control: Rivals such as France‘s Michelin (which owns Uniroyal Goodrich in the U.S.) and Japan‘s Bridgestone (which owns Firestone in the U.S) have reorganized themselves to compete head-tohead in the same emerging markets. During the early 1980s, Goodyear’s world market share dropped to third in the wake of acquisitions by rivals. For the balance of the decade, it will be a contest of internal efficiencies and global marketing prowess. Gault talked with CE ‘s J.P. Donlon about these developments in his Akron headquarters.

OUT OF RETIREMENT, INTO THE BLACK

After a successful career at GE and Rubbermaid, why did you choose to come out of what was a three-week retirement to join Goodyear in 1991?

The company was bordering on bankruptcy. When the board approached me and was persistent, I made a decision that was 98 percent emotional, based on my positive experience with Goodyear throughout my business life. I knew the company had many strengths: talented people, the greatest name in the industry, a strong distribution system. It was known as a good corporate citizen. I knew it was capable of far greater performance. I said at the time: “Your greatest assurance that I know I can pull this off is the fact that I’m here. Because at my age, I wouldn’t be sticking my head in this noose unless I was convinced we could win.”

What were your major challenges?

We have grown from a severely damaged position-financially, moralewise-to one of leadership. That can be measured in a number of ways: in new product introductions, market position, financial performance, people advancement, global presence. We’ve also transformed ourselves from a manufacturing-based company to a marketing-based, customer-oriented enterprise. We now outperform our competitors in every way: new products, quality, service, treating our people fairly, and corporate citizenship.

My most difficult challenge was changing Goodyear’s culture. Previously, we had a “silo effect” within the organization: Functions and units were self-contained, not by design but by modus operandi, and communications between units were unsatisfactory. And prejudices had built up. So we had to remove these silos.

Was it easier for you make these changes as an outsider?

It was easier for me to do it, because I came here not looking for a job. I was convinced that with some direction, we could pick ourselves up by the bootstraps and get this show underway. Also, I’m not a technically trained person; I came out of sales and marketing, but I’m a geologist by training though I never pursued it. I have a deep interest in all the functions: Some say I’m nosy; I say I’m curious. I would go into the factories on Saturday mornings to see how the factory worked. Now, no one in sales goes into the factories on Saturday mornings. I wasn’t trying to set an example; I was trying to find out. The old timers who know where all the bodies are buried will break their necks to help you learn the functions if you show genuine interest.

TURNAROUND: A PRIMER

How did you begin the process of repair?

At the time, Goodyear had its first loss in 58 years. On top of that, we had the cost of defending ourselves against a hostile takeover, and some investments proved unfortunate. Our stock had fallen from $76 to $61/2 on today’s basis, and we were paying $1 million a day in interest charges-just bleeding the corporation.

We needed to generate cash fast, and we knew we would have to sell off some assets, but we needed to be united in choosing them.

We met on a Friday morning, and we went around the table and looked at each budget item individually. I had to make certain that everyone would open up, which previously had been a problem. Once the staff knew I was asking for their sincere, intellectual, experience-based opinion, we had a good dialogue.

Debt reduction required different things. No. 1, we had to reduce our inventories, our working capital, our accounts receivable. We had to increase our selling prices where possible. We had to cut costs throughout the system.

No. 2, we needed objectives for the and at a meeting that was filmed and sent to our facilities around the world in July 1991, I recited each one. I explained how we would fulfill these strategies, and where the staff could see itself fitting in as a group, function, or individual. That way, we all were moving in the same direction.

The result: We cleaned up our balance sheets, we reduced our debt by $1 million for the following 18 months, we took charge of $1.2 billion for future medical care costs, we put hundreds of millions of dollars into a pension fund.

We’ve done all this, and we only had two people come in from the outside, a chief financial officer and, more recently, a legal counsel. So contrary to what I did at Rubbermaid, I did not do a wholesale switchout. People didn’t expect that.

Now we have set record sales, we have record operating income, we’re selling more units in every region of the world, and we have significantly reduced our debt. And we’re doing it with 20,000 fewer people than we had before. We’re producing significantly more, and we’re doing it with less. The beneficiaries are the shareholders and the consumers. As it should be.

How will you improve Goodyear’s No. 3 position in world market share?

We’re No. 1 in the U.S., which is why we have the identification on the blimps. Being No. 1 worldwide is not our No. 1 priority; our priority is being the best. If we are the best in all areas-product and service, in enhancement to shareholders-we will end up being No. 1.

Most marketers say if you’re going to increase share, you have to cut prices. We’re not going to do it that way. We’ve increased production worldwide, in every region with improving profitability.

We also have developed a richer product mix, because mix is as good as price. It helps that the performance tire category is the largest growing category in the tire business, and we are the strongest player in that category.

TREADING WATER

What new products have been introduced during your tenure?

We introduced the Aquatred, and we had specific guidelines for it: It had to be all-season, it had to have a good ride characteristic, a low noise level, and good mileage. What I knew from Rubbermaid is that you can use a hot item to draw interest to your other products. We knew we couldn’t stop there, because our competitors would try to come in at price points above and below us. So we brought out the Eagle Aquatred with a dual groove-what we call “aqua channels”-for high-performance cars. Since we needed something at the lower end, a more modest tire, w e brought out the Intrepid, but we didn’t put the Aquatred name on it. Since the light truck category has had staggering growth gains and our Wrangler tire is the most highly preferred replacement tire in the U.S., it made sense to bring out a Wrangler Aquatred. Eventually, we went back and made the original Aquatred better, so now we have Aquatred II.

None of these products was in the line when I arrived.

How long does it take you to develop a tire from conception to end-product?

It depends, but it can take as long as five or six years with tests for reliability, safety, productivity, and uniformity.

How much shorter would you like that cycle to be?

We’d like to cut it at least by a third, if not 40 percent, provided there are no short cuts in quality and safety. And it has to be viable financially.

GROWING GLOBAL

With car sales having peaked in the U.S. and now stagnant in Europe, coupled with price increases of raw materials, will tire sales suffer?

Those are obviously challenges. But the tire business worldwide is growing. You have the new dimension of Southeast Asia and Eastern Europe. In the U.S., the production numbers for new cars are impressive: 15 million. That’s one tremendous number of vehicles.

We want Goodyear to be a truly global enterprise, so it can capitalize on synergistic opportunities in equipment purchases, material purchases, logistics, technology, and manufacturing processes. It will give us economic diversity, because the world usually isn’t in recession simultaneously. So we’re not going to get trapped as a commodity producer in the U.S.; we’re going to balance ourselves worldwide so we can sustain performance. And shareholders like sustained performance, not the y o-yos up and down. And we have to be able to do that with changes in currencies, devaluations, and economic and military and social uprisings.

Currently, 40 percent of your revenue comes from international sales. How will you increase sales internationally?

International growth will come from four areas. The buzz words used to be China and India. More recently, Brazil has been added to the list. We’ve always had those three as targets. Eastern Europe is now another growth area, both as a consumer and as a manufacturing location for exportation. We are well-positioned in all those areas.

We’re the first Western tire manufacturer to produce in China. We no doubt will have more than one location in the days to come. We also manufacture other products, such as air-conditioning hoses, brake hoses, and so forth, to serve the automotive interests o f China and Southeast Asia.

We’ve been in India since about 1931. We had a commanding position there, which deteriorated over the years, since the cash was taken out of there. But it’s a growth country with 935 million people and a big middle class.

How much are you spending to develop overseas markets?

We’re putting a quarter of a billion dollars into Southeast Asia in less than four years.

A TIRE IN EVERY GARAGE

Your strategy has been to widen your distribution to as many outlet points as possible. Do your dealers feel undercut by broadened distribution of your products?

Our objective is to have our products displayed, promoted, and available where people want to buy tires. When I came here, the market was changing, and. Goodyear tires were not sold through all the channels. Obviously, that is a dead-end street.

Before we joined with Sears, we researched it and found there is little crossover between a Sears customer and one who goes to a Goodyear independent dealership. Therefore, all the business would be incremental. The same is true of Wal-Mart, where we now have three lines of tires plus the Douglas brand, which we do only for Wal-Mart.

I knew this would be emotional for the dealers. I wanted them to know that we would not simply transfer business from them to someone else. Now, we sell different lines through different distribution channels. And the dealer likes that because what he has, the other guy doesn’t have over here; over here they like that because what they have, the dealer doesn’t have.

SKIDDING ALONG THE SUPERHIGHWAY

You have a Goodyear Web page on the Internet. Does this mean you’re going to be selling tires in cyberspace?

I can’t say never, but it will take some time. A tire can’t be shipped like a piece of jewelry; it has to be installed, balanced, aligned. That makes buying them on the Internet difficult. But we want to be well-positioned to provide information quickly, to direct people to where they can buy tires easily and conveniently.

TURNING POINTS

Looking back at your three-company career, was there a single turning point that made you into the executive you are today?

It was when I moved from distribution to product manufacturing. To go from distribution into the factory, so to speak, is a major career change.

I’ve also had the pleasure of serving under some of the most outstanding business leaders in American. industry. Some of them viewed me like a son-and perhaps were as hard on me as they would be on their own. But I learned a tremendous amount from that, and it’s served me well.


12 Objectives For Managing Goodyear In The 1990s

In July 1991, one month after he took over as chairman and CEO, Gault introduced these 12 goals to all employees of Goodyear:

  • Achieve significant debt reduction.
  • Substantially increase financial performance.
  • Hold a quality leadership position.
  • Be a low-cost supplier.
  • Provide superior customer service.
  • Increase market-share penetration.
  • Maintain product-development leadership.
  • Expand global presence.
  • Be a socially responsible corporation.
  • Maximize human-resources capability.
  • Remain an independent enterprise.
  • Enhance shareholder value