Firestone Wasn’t Pushed Out of Tires--It Jumped
It sounds at first like the same old story: A grand old American company fades into history, with a helpful shove from its foreign competitors.
This time the firm is Firestone Corp., a pioneer tire maker whose fortunes vaulted with those of the auto industry in earlier decades. Firestone announced Friday that its huge factory network and other holdings will be sold to rival Bridgestone of Japan for $2.6 billion in the coming months.
But the Firestone takeover is not the cliche of an American company that squandered its markets or forgot how to craft a product the public wanted, according to experts on the tire industry. To the contrary: Despite its problems, Firestone enjoys assets that are coveted by its rivals.
Donald F. DeScenza, an analyst with Nomura Securities in New York, put it simply: “I think they gave up.”
What happened to the company that began as a 12-man shop outfitting buggy tires in West Virginia at the turn of the century and at its peak in the 1970s employed more than 110,000, vying for world leadership in the industry?
To begin to understand Firestone’s fate requires an awareness of forces that are revolutionizing the business of making tires. More than ever, companies that wish to survive need far-flung factories to serve auto makers and other key customers when they set up new facilities. A vast geographical base also provides valuable flexibility in a day when changing currency values quickly erode the profitability of shipping tires from one country to another. In addition, only financially strong manufacturers can build state-of-the-art plants, which easily can cost $250 million. Surviving in the current environment, in other words, takes a deep determination and commitment to manufacturing tires.
“It isn’t that Firestone is in trouble and needs to be taken over,” said DeScenza. “It’s that Firestone’s management regards the interest expressed by Bridgestone as an opportunity to enhance its value to stockholders . . . It’s a management that has no loyalties to tires.” Bruising competition has affected a whole range of U.S. tire companies. It set the stage for the 1986 merger between B. F. Goodrich and Uniroyal, for example, forming a combined company that still struggles to preserve its share of the U.S. market, experts said. As such companies battle to survive, tire-making is increasingly dominated by a set of global powerhouses, such as Goodyear, Bridgestone, Michelin of France and Pirelli of Italy.
“We no longer have U.S. competition,” Dennis W. Rich, Goodyear’s director of business planning, declared after Firestone’s announcement on Friday. “They’re all foreign names now. They’re rapidly growing and they’re very capable.”
But to really understand why Firestone lost its commitment to making tires, one has to look further back--to the 1970s, a time when Americans’ driving habits were disrupted by oil shortages, soaring gasoline prices and lower speed limits. The emergence of longer-lasting radial tires was a headache for the entire U.S. industry: People no longer had to replace tires as frequently. Firestone, in particular, was badly shaken by consumer complaints about its new product, the Firestone 500, leading to a recall that cost more than $100 million.
Changing Priorities
Weighed down by debt, hobbled with inefficient factories and facing downward pressure on its stock, the company sought a more profitable course. Its new president, John J. Nevin, closed inefficient factories, shutting down seven North American plants in 1980 alone and eliminating thousands of jobs. At the same time, he steered the manufacturer toward the service sector, with a new emphasis on auto repair, retail sales and even car rental.
“There’s nothing wrong with the company or its performance,” said Lloyd Stoyer, editor of Modern Tire Dealer, a trade publication in Akron, where Firestone’s tire manufacturing is based (the corporate headquarters is in Chicago). “The corporate priorities have been in different areas--where there may be more return on investment.”
Firestone’s wish to quit manufacturing tires became vividly clear in mid-February, when it announced a tentative plan to sell 75% of its factory operations to Bridgestone. Under the deal, Firestone would have been left largely as an auto repairer--and seller of tires made by others.
Yet even as Firestone confronted an increasingly tough competitive environment, it still enjoyed strengths that led to a recent bidding war for its assets between Bridgestone and Pirelli.
Firestone possesses 21.9% of the U.S. tire market in sales to auto makers and 9% of the market in sales to consumers, according to Modern Tire Dealer. That is second only to Goodyear in each category. In addition, its combined U.S. sales to Ford and General Motors led the way among domestic manufacturers.
Friday’s announcement culminated years of negotiations between Firestone and Bridgestone, a firm that has been largely frustrated in its attempt to win a significant share of the U.S. tire market. And it symbolized the sharply divergent corporate objectives of the two companies.
Got Jobs Back
By the early 1980s, for example, Firestone was running its truck-radial plant near Nashville, Tenn., at a bare-bones level and had laid off 400 factory workers. In 1983, Firestone unloaded the facility to Bridgestone for $52 million, as part of Firestone’s changing priorities.
After taking over the plant, Bridgestone demonstrated its own agenda by pouring $68 million into new equipment and another $13 million into a new warehouse. Last year, it announced plans for a $70-million expansion to produce auto tires. Productivity has soared since it took over, Bridgestone maintains. In addition, the Japanese company ultimately offered jobs to the workers Firestone let go--offers that many accepted.
On Friday, Bridgestone’s president, Akira Yeiri, made it clear that he saw Firestone’s future as something other than a service firm. The plan, he said, was to make it part of the most technologically advanced tire company in the world.
“They (Bridgestone) want in here,” said Stoyer. “And with Firestone, they can have the things they need.”
Over at Goodyear, the world’s largest tire manufacturer, the developments are being watched with keen interest. For years, Goodyear and Firestone competed neck and neck for first place. Goodyear executives have special insight into Bridgestone: After World War II, when Japanese industry was in a shambles, Goodyear shared technology with the company.
Catching Up
In fact, Goodyear was so impressed with the quickness of its pupil that it opted to cut off the relationship in the early 1970s. “We saw what an ogre hath we created,” recalled Goodyear’s Rich, tongue-in-cheek.
With the purchase of Firestone, Bridgestone emerges as the second-largest tire maker in the world--behind only its former mentor.
BIGGEST JAPANESE DEALS IN AMERICA
These are the major completed purchases of companies and investment stakes in America by Japanese companies since 1984, and the years in which deals were finalized. Source: IDD Information Services. Dollar figures in millions.
Year Target Acquirer $ Value ’88 CBS Records Sony 2,000 ’88 Westin Hotels Acquisition group 1,530 ’86 Sun Chemical-Arts Materials Dainippon Ink & Chemical 550 ’87 Reichhold Chemicals Dainippon Ink & Chemical 541 ’87 Shearson Lehman Nippon Life Insurance 530 ’84 Walter E. Heller & Co. Fuji Bank Ltd. 425 ’87 CPC-Asian Grocery Products Ajinomoto 340 ’84 National Steel Nippon Kokan 322 ’87 Hyatt Regency Maui KM Hawaii 319 ’87 PaineWebber Group Yasuda Mutual Life Insurance 300 ’84 BanCal Tri-State Corp. Mitsubishi Bank 282 ’86 Lloyds Bank California Sanwa Bank California 263
