Goodyear: the Aquatred Launch

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  • Topic: Goodyear Tire and Rubber Company, Michelin, Tire
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Harvard Business School

9-500-039
Rev. November 9, 1999

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Goodyear: The Aquatred Launch (Condensed)

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In January 1992, Barry Robbins, Goodyear’s vice president of marketing for North American Tires, was contemplating the upcoming launch of the Aquatred, a new tire providing improved driving traction under wet conditions. The Aquatred would be positioned in the U.S. market as a replacement tire for passenger cars. Over recent years, the replacement tire market had matured and new channels had gained share, so Robbins needed to make sure Goodyear had the right product and the right timing to generate support from the company’s traditional base of independent dealers. Despite a long and close relationship with those independent dealers, Goodyear was also weighing the risks and benefits of expanding the company’s distribution channels. If new outlets were added, Robbins would also have to assess whether the new channel would sell the Aquatred.

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Background

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In 1991, Goodyear operated 41 plants in the United States, 43 plants in 25 other countries, six rubber plantations, and more than 2,000 distribution outlets worldwide. In fiscal year 1991, Goodyear earned net income of less than one percent on total revenues of $10.91 billion; the company had approximately 105,000 employees. Goodyear ranked third in worldwide sales of new tires behind Michelin and Bridgestone, respectively.

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Low growth, declining prices and over-capacity in an environment of corporate consolidation characterized the U.S. tire industry. Exhibit 1 lists the brand shares of U.S. retail sales for the largest tire manufacturers from 1975 to 1990. During this period, Michelin achieved large share gains in both the replacement and original equipment manufacturer (OEM) markets. Unlike other U.S. tire manufacturers, Goodyear had made large investments (over $1.5 billion) during the late 1970s to produce radials. The company also had a strong track record in launching innovative new products. For example, in 1981 Goodyear successfully launched the Eagle, the first radial tire offering high-speed traction for sports cars. On a typical radial, the cost of goods sold was 60% of the manufacturer’s selling price, but the Eagle provided Goodyear and its dealers with higher percentage profit margins than standard radials.

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In the early and mid-1980s, Goodyear made large investments in pipelines for natural gas and oil transmission. In 1986, Sir James Goldsmith attempted to take over Goodyear and was bought out by management after a highly emotional takeover battle, which greatly increased Goodyear’s

Professor Samuel Chun prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is a condensed version of the case, Goodyear: The Aquatred Launch, HBS Case #594-106, prepared by Bruce Isaacson under the supervision of Professor John Quelch.

Copyright © 1999 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1

500-039

Goodyear: The Aquatred Launch (Condensed)

debt. Although 13% of the company’s work force was furloughed between 1987 and 1991, in 1991 Goodyear was still spending $1 million per day on interest payments, and earnings were sluggish.

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In June of 1991, Stanley G. Gault, retired chairman of Rubbermaid, became chairman of Goodyear. Gault had been a member of Goodyear’s board of directors, and many hoped that he would bring the same marketing flair and new product skills that he...
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