Crain News Service
A new global alliance between Goodyear Tire and Rubber Co. and Japan's Sumitomo Rubber Industries Ltd. will make Goodyear the world's biggest tire producer - a market position it lost in the late 1980s.
The agreement calls for the formation of one joint-operating venture in North America, one in Europe and two in Japan; a stock swap and cash payment to Sumitomo of nearly $1 billion; U.S.-based support ventures for global purchasing; and the sharing of technology.
The new joint ventures are expected to bring Goodyear increased annual sales of $2.5 billion, the company said. That revenue would push Goodyear, currently third among world tire makers with total 1998 sales of $12.6 billion, past competitors Bridgestone Corp. and Michelin.
Goodyear estimated that its world market share will rise from 17.5 percent currently to 22 percent as a result of the deal.
Sumitomo is the second-largest tire manufacturer in Japan after Bridgestone, and owner of the Dunlop tire brand in North America, Europe and Japan. The company said in a press release that its consolidated sales probably will decline as a result of the alliance, but its profitability will increase.
Goodyear CEO Samir Gibara acknowledged the increase in Goodyear's market position but cautioned that other aspects of the deal are more important. 'The goal is not to grow our market share,' he said. 'It is to make our two companies more efficient, more effective.'
Gibara said that cost improvement and rationalization made possible by the joint ventures could increase the two companies' operating profits by $300 million to $360 million during the next three years.
But size still counts, said Richard Henderson, an industry analyst with Pershing, a division of Donaldson, Lufkin & Jenrette Inc. 'In the global markets, size leads to efficiencies, and through Sumitomo, Goodyear seems to have the major world markets covered.'
Goodyear will own 75 percent of both the North American and European ventures. The European venture will be the largest, consisting of 14 operations, eight of them presently owned by Sumitomo.
In Japan, where Goodyear has a less than 1 percent share of the original-equipment tire market, and only a 2.5 percent share of the replacement market, Sumitomo will own 75 percent of two joint ventures. One will supply both Dunlop and Goodyear brands to Japanese automakers, and the other will provide Goodyear-brand tires to the replacement market.