Goodrich, Uniroyal to Merge Tire Operations in New Joint Venture

B. F. Goodrich and Uniroyal, two of the best-known names in the automobile tire business, said Tuesday that they have agreed to merge their tire operations into an independent joint venture, forming the second-largest tire company in the United States.

Company executives and industry analysts said the move was part of the drastic shakeout in the domestic tire industry that has been under way since the late 1970s. U.S. tire makers are not only under pressure from a rising tide of imports, which now account for about 25% of the market for passenger car replacement tires, but also from the massive shift from bias-ply to longer-lasting radial tires, which has reduced the need for replacement tires.

In response, the tire companies have been shuttering plants, dropping product lines and diversifying into unrelated industries in recent years in an effort to reduce their exposure to the glutted tire market. And analysts noted that, by consolidating their tire operations through the joint venture, Goodrich and Uniroyal will be able to offer a broader array of products while distancing their parent organizations from the financial woes of the tire industry.

$2-Billion Annual Sales

Spokesmen for Goodrich and Uniroyal said they don’t believe that the joint-venture agreement will encounter opposition from antitrust regulators, adding that the new organization, to be called Uniroyal-Goodrich Tire Co., could be operating by July.

With 21,000 employees, annual sales of $2 billion and a net worth of between $500 million and $600 million, the joint venture will operate nine tire manufacturing plants, including five in the United States--at Ardmore, Okla.; Fort Wayne, Ind.; Eau Claire, Wisc., and Tuscaloosa and Opelika, Ala. It will also own tire textile and synthetic rubber facilities in the United States and Canada.

With each parent holding half ownership, the joint venture will be based in Goodrich’s Akron, Ohio, headquarters building, but will also continue to use Uniroyal’s Troy, Mich., original equipment and technical headquarters offices.

Patrick C. Ross, currently Goodrich’s president, has been named the joint venture’s chairman and chief executive, while Sheldon R. Salzman, Uniroyal’s group vice president for tire operations, will be the new vice chairman and chief operating officer.

Company executives said Goodrich, which is strong in the replacement tire market but which pulled out of the original equipment passenger car business in 1981, and Uniroyal, which is ranked second in direct sales to Detroit auto makers but which is weak in the aftermarket, should match up well in the new joint venture. The joint venture will continue to sell tires under both the Goodrich and Uniroyal brands as well as under the private brand names offered by independent distributors and retail chains.

‘A Perfect Fit’

“The proven strengths of Uniroyal in the original equipment market, combined with Goodrich’s . . . replacement tire capabilities, make for a perfect fit,” Uniroyal Chairman Joseph P. Flannery said.

Both firms said they don’t expect to close any of their manufacturing plants as a result of the combination but did warn that some management positions may be eliminated as overlapping administrative functions are streamlined. Curtis Brown, a spokesman for the United Rubber Workers, said the union does not know whether there will be any job losses among unionized employees at either Goodrich or Uniroyal.

By spinning off their tire operations, both Goodrich and Uniroyal will become much smaller corporations with little exposure to consumer markets; they will be specializing in chemicals and other industrial products.

Tires currently account for 37% of Goodrich’s revenue, with plastic resins, specialty chemicals, aerospace, defense and industrial products making up the rest.

Goodrich, currently the nation’s third-largest tire producer, behind Goodyear Tire & Rubber Co. and Firestone Tire & Rubber Co., has not yet released its year-end financial results. But it posted a $349.4-million loss on sales of $2.43 billion in the first nine months of 1985, mainly because of big write-offs resulting from its ongoing restructuring efforts. In the same period in 1984, Goodrich reported a profit of $67.8 million on sales of $2.54 billion.

Uniroyal, now a privately held company based in Middlebury, Conn., is also trying to sell its other main business, a specialty chemicals division. Uniroyal spokesman Yanis Bibelniks said the firm, which was taken private through a leveraged buy-out in September, needs to pay off about $950 million in debt incurred in the buy-out and so hopes to sell its chemicals operations by April or May for about $1 billion.

Ghost of Former Self

With both its tire and chemical divisions gone, Uniroyal would be left with only its engineered plastic products segment, which accounts for about $750 million in annual sales, and would only be a ghost of its former self.

“If they sell off the chemicals and spin off the tires, they would have virtually liquidated the company,” said Dudley Heer, an industry analyst with the investment firm Duff & Phelps in Chicago. In the first nine months of 1985, Uniroyal posted net income of $44 million on sales of $1.57 billion, compared to earnings of $16 million on sales of $1.6 billion in the same period in 1984.

Although Goodrich and Uniroyal are still making money in the tire business, analysts say the huge capital investments needed to keep up with the new products being offered by the imports and industry giant Goodyear have made the tire market less and less attractive to smaller domestic firms.

But said the consolidation will give the joint venture “the financial strength to spend the necessary funds on advanced manufacturing processes as well as the funds for . . . new tire research and development.”

Unfunded Pension Liabilities

But some analysts aren’t convinced that the consolidation really represents a renewed commitment to the tire business by either firm. Donald DeScenza, an analyst with Nomura Securities in New York, speculated that the joint-venture agreement was also a way for the two firms to legally separate their parent organizations from their tire operations so they can sink or swim without pulling down their unrelated businesses. He said the parent firms may no longer have to pay the unfunded pension liabilities of their unionized tire operations if the joint venture goes under, relieving them of the biggest cost they faced in the event of a shutdown.

“My thought is that this is a way of getting out of an unattractive business for both of them,” DeScenza said. “This is a way of getting rid of their tire businesses without saddling their other operations with its liabilities,” which they would face if the parent firms shut down their tire plants and took big write-offs.

KEY MARKETS FOR UNIROYAL AND GOODRICH

Largest manufacturers of tires for new domestic cars Market share Goodyear 32.0% Uniroyal 22.0% Firestone 21.5% General Tire 13.0% Michelin 11.0% Continental 0.4% Other 0.1%

Largest producers for replacement-tire market Market share Goodyear 15.5% Firestone 9.5% Sears 9.0% Michelin 8.0% Goodrich 4.5% Uniroyal 3.0% Imports 25.0%* Private labels 25.5%* * Estimate

Source: Modern Tire Dealer