Goodyear Tire Company: A Competitive Automotive Supplier

Feb.28.11 | About: Goodyear Tire (GT)

Last week I wrote an article about O’Reilly Auto Parts (NASDAQ:ORLY) and the necessity driven auto parts retail business. As mentioned in the article, the parts business is reliant upon used car demand and is directly related to decreased demand in new car sales. Although the auto parts retailers have done extremely well, many of the new car manufacturers are starting to ramp up production and conversely, so are the auto parts suppliers.

Over the last 16 years, I have witnessed first-hand the growth of an automotive manufacturing giant. BMW started production here, in my hometown of Spartanburg, South Carolina, and since that time, the North American manufacturing plant has produced over 1.7 million vehicles. Currently the plant produces approximately 1,000 vehicles each day and the company recently announced increased sales capacity by 50% or 240,000 vehicles annually (primarily driven by demand of the X3 vehicle). BMW employs around 7,000 people (at the US plant) and it was recently reported to be the “largest vehicle exporter from the US to non-NAFTA markets”.

Last year (2010), BMW exported approximately $ 4.2 billion of passenger vehicles through the Port of Charleston…well over 110,000 vehicles. Currently the Spartanburg, SC plant for BMW produces the X3 Sports Activity Vehicle, X5 Sports Activity Vehicle, X5M, X6 Sports Activity Vehicle Coup, X6M, and Active Hybrid X6.

To manufacture its “best in class” vehicles, BMW partners with over 170 North American suppliers, including approximately 40 in South Carolina. Given the large automotive supplier base, there are many internationally recognized private and public automotive parts companies. Many of these international suppliers are also well represented in Germany, BMW’s home. Companies such as Goodyear Tire (NYSE:GT) ((NYSE:USA)), Bosch (Germany), Michelin (France), Delphi (USA), Thyssen-Krupp (Germany), and ZF Group (Germany) all have significant operations there.

As evidenced by the most recent quarterly results, one North American based supplier seems to be providing positive momentum. Goodyear Tire (GT) recently announced its 4Q and 2010 annual results (see conference call transcript here) and the world’s largest tire company appears to be making some valuable progress.

2010 full-year highlights include:

  • North American Tire profitable
  • Segment Operating Income exceeds $ 900 million
  • Price/Mix more than offset raw materials
  • Significant cost savings ($467 million) and unabsorbed fixed cost recovery ($278 million)
  • High return investments to drive future growth

North America returned to profitability in 2010 due to brand strength, product innovation, supply chain efficiencies, and dealership business.

Here is a summary of 4th quarter results:

Goodyear Tire

4th Quarter Results (in millions, except Margin and EPS)

2010 (4Q)

2009 (4Q)






Net Sales




Gross Margin









Segment Operating Income




Segment Operating Margin





Goodyear Net (Loss) Income



Goodyear Net (Loss) Income per Share



Click to enlarge

Goodyear’s annual sales for 2010 were $18.8 billion….up 16% from $ 16.3 billion in 2009. An 8% improvement in the tire unit volume as well as a $ 582 million increase in sales (primarily due to its 3rd party chemical business). Here is a chart for 4th quarter unit/sales mix for 2010 and 2009:

Goodyear Tire

4th Quarter Unit/Sales Mix (millions)




Consumer Units




Commerial Units




Click to enlarge

Indeed the tire giant is strained with its high debt; however, I do not see the finances to be in imminent danger. The company’s price mix savings of $ 689 million more than offset the $685 million in increased raw material costs. In addition, the company’s recently announced closure of a plant in Union City, TN will save the company around $ 80 million starting in 2012. Here is a chart outlining some historical results for the past 3 years:

Goodyear Tire

Historical Results








Net Income








Long Term Debt




Shareholder Equity




Click to enlarge

Regarding liquidity and capital preservation, Goodyear has done a good job using capital generated from selling off foreign holdings and the funds have allowed the US based manufacturer to increase its domestic model and also pay down debt incurred during the recession. According to the company’s 4th quarter liquidity profile there is $ 2.005 million in cash available and another $ 2.475 million in unused availability under credit agreements and $ 283 million under the Pan-European securitization program – making the liquidity profile in excess of $ 4.8 billion.

In summary, one way to profit from the growing automotive manufacturing business is to invest in auto parts suppliers. With over 1,500 tire and service outlets, 57 manufacturing facilities, and 23 countries, Goodyear Tire is an iconic brand with worldwide market share. As the worldwide automotive market continues to grow, Goodyear Tire should continue to increase sales, decrease costs, and build its US based world brand dominance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.