Goodyear’s chemicals business a hard sell, Cooper acquisition ‘very poor’ move – analyst

SAO PAULO (ICIS)–Finding a buyer for US tire manufacturer Goodyear’s chemicals business could be an uphill while the overall company’s profitability continues to lag competitors, a tire industry analyst said on Tuesday.

Following pressure from activist investor Elliott, Goodyear announced earlier in November its intention to “actively pursue strategic alternatives” for its chemical business, its Dunlop brand, and its off-the-road equipment tire business, as part of its so-called Goodyear Forward transformation plan.

The plan aims to achieve gross proceeds of more than $2bn from portfolio optimization, the company said. As part of this, the company said it is to close two plants in Germany.

Tires is the main end-market for styrene butadiene rubber (SBR).

Industry analysts are skeptical Goodyear’s intentions can bear fruit, at least in the short term.

Firstly, Goodyear’s chemicals business – composed of four plants in the Americas – mostly produces tire products without much added value: it is a good generator of sales volumes, but the business does not produce any high technology tires.

Thus, it may be hard to find a buyer for that business, said David Shaw, CEO at Tire Industry Research, who organized the webinar on mobility and the tire industry on Tuesday.

“Goodyear’s synthetic rubber plant doesn’t produce high technology tires; they are not making the best possible rubbers, which they can buy from other companies,” said Shaw.

“[Chemicals] is not doing anything for them strategically. It is just providing volumes. Pretty much all the tire makers have got rid of any upstream supply, and only retain it when it delivers technology and helps them beat their suppliers. I think Goodyear is not going to find any buyer and, if they do, the price will be lower than it expects.”

Secondly, while Goodyear’s competitors in the US and China are advancing at speed in changing their business models to offer not just tires, but other services with added value such as selling services and adding data, trying to improve their customers’ business prospects.

Goodyear is practically yet to start making those changes in its offering so it can increase margins.

Shaw said that, adding to the issues, Goodyear’s governance model and its way of addressing cost-cutting still resembles that of companies “in the 1990s and 2000s”, with its executives failing to see the change the manufacturing sectors are going through due to data and further automatization.

Finally, Goodyear’s decision to acquire Cooper Tire in 2021 for $2.5bn did not bring the bonanza expected, but increased debt and deprived the company of the financial muscle to invest in the new business endeavors to position the company in a good place to compete with ever-growing Chinese companies.

“Goodyear wanted to please [equity] analysts and Wall Street, but the problem is that analysts are failing to see the change, the disruption even, the manufacturing sectors are going through. Chinese tires are now very good tires, and are gaining market share in North America,” said Shaw.

“By buying Cooper, they increased debt by nearly $3.0bn. Before that transaction, they had flexibility to do new things, get into new, data-oriented businesses, data oriented. In a way, the acquisition of Cooper reinformed the understanding within the company that they sell tires and little more. The acquisition was a very poor decision.”

Goodyear’s Cooper-related troubles are shown in the graph below. After the Cooper acquisition in mid-2021, the company’s operating margins improved for a couple of quarters but fell in all but two quarters ever since and they have lagged most of its competitors’.

TIRE COMPANIES PROFITABLITY
Operating margins by quarter

Source: Tire Industry Research