The following is an executive summary of The Goodyear Tire Corporation. This case analysis will include a company background followed by a five forces model of the industry competition and SWOT analysis. The summary will also include a financial analysis of the corporation along with Goodyears corporate level strategies and objectives. Finally, alternatives will be addressed, recommendations will be made, and implementation and control will be discussed.
By 1986, Goodyear had a debt of $3.7 billion dollars. From 1982-1986 Goodyear’s principal business was development, distribution, and sales of times for most applications. Gooyear was a multi-product, diversified conglomerate. Goodyear’s approach to becoming a global company was having only one single global strategy, instead of tailoring products and distribution to each national market.
THE FIVE FORCES MODEL OF INDUSTRY COMPETITION
The market is at a mature stage, but the entry level is fairly low.
·The degree of rivalry is high. Tires are sold almost everywhere.
·The companies are interdependent, the competitive actions of one company directly affect the profitability of the others in the industry.
·The bargaining power of the suppliers is high. Tires are a necessity.
·The bargaining power of the buyers is 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 is high. There are many tire companies to choose from. You can purchase tires from many different stores from Sears to Wal-mart.
-When Gualt 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.
-Gualt being very “involved” came in and turned the company around in about four years after coming to Goodyear in 1991.
-Gault divested assets not related to the tire business to reduce costs also removing light bulbs from his office and selling the corporate aircraft, Goodyear’s New York apartment and laying off thousands of “associates” shows his commitment to reducing the cost and debt, which is another strength we found at Goodyear.
-Gualt would not allow shoddy merchandise and expects the best quality in the industry. The global company is committed to quality in every aspect of the operation and satisfying their customers.
-When Gault first took over the company he realized the need for major change within the company that involved everyone who worked for Goodyear. He stated, “There was no quick fix or instant formula for success”. He knew that it was a matter of returning to the basic concepts that many technology-driven companies often forget. To start, Gault wanted to
1.Review all of the companies operations.
3.Identify corporate assets to sell in order to reduce debt.
4.Eventually create a world-class, market driven, customer oriented tire manufacturing operation.
These are a number of strengths we found that helped Goodyear to become “No. 1 in Tires”.
-This included costs from light bulbs to employees, which resulted in 19,000 employee layoffs in 1991 and down to 89,000 in 1994.
·Having operations not related to the tire business.
-Gault came in a tried to get rid of the debt which was accruing a million dollars interest daily
·Goodyear’s opportunities are to go overseas where it will be less to produce and manufacture goods.
-Goodyear noticed that in order to capture a large market share they must have distribution centers. This resulted in Goodyear selling tires through the Canadian Tire and Discount Tire.
-Goodyear realized consumers were buying tires at multi-brand discount outlets, as well as warehouses, which resulted in Goodyear opening a chain of ”Just Tires” that sell only tires, mounting, balancing, and alignment, with no auto repair.
·Customers want to product available in heavily shopped stores like Kmart, Wal-mart, and Sears.
·Other chains which sell in larger quantity and offer at lower prices.
Gross Profit Margin = (Sales – COGS)/Sales = (12,288.20 – 9,271.40)/12,288.20 = 24.6%
Net Profit Margin = Net Income/Sales Revenue = 567.00/12,288.20 = 4.6%
Current Ratio = Current Assets/Current Liabilities = 3,622.70/2,572.00 = 1.41
Quick Ratio = (Current Assets – Inventory)/Current Liabilities = (3,622.7 – 1,425.10)/2,572.00 = 0.85
Inventory Turnover = COGS/Inventory = 9,271.40/1,425.10 = 6.51
Debt-to-Assets Ratio = Total Debt/Total Assets = 6,320.10/9,123.30 = 0.69
Debt-to-Equity Ratio = Total Debt/Total Equity = 6,320.10/2,803.20 = 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. While a portion of those assets is in inventories, the majority of those claims could be paid off without relying on the sale of inventories. The company turns over its inventory 6.51 times a year, so inventory is sitting for almost two months before it is sold. 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.
GOODYEARS’ CORPORATE LEVEL STRATEGY AND OBJECTIVES
The highly competitive tire industry consists of well known established brands such as Michelin, Firestone, BF Goodrich, and Goodyear, all competing in a mature commodity industry. Which going global and adding value, quality, and convenience is crucial to be successful.
·Diversification Into Related Products
Goodyear needs to continue to keep their costs down and by doing this they could easy have continued success in the the global tire industry.
Currently, Goodyear has a global industry which reaches many countries. This global expansion was a smart plan for Goodyear because it helped to control their costs and reduce their debt to help them start planning on a profit.
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 CFO. The company is on the right track now and needs to keep the same focus to stay successful. However, Goodyera 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 to lead the company and continue to stay successful.
·Continue to advertise, market, and expand.
·Continue to keep up with technological changes.
By 1995, Goodyear was a leader and a very profitable business. They had slashed costs and had improved operating performance, boosted overall quality production, and reduced the debt. One way that Gualt achieved this status was by being very thrifty in all the areas of the company. Another way that Gualt turned the company around is by implementing an aggressive marketing program that focused on what the customer wanted: convenience, quick service, low prices, and a good selection to choose from.