Rolling Again

Firestone's strong comeback

Less than two years ago, Akron's Firestone Tire & Rubber Co., the second largest U.S. tiremaker, behind Goodyear, was skidding almost uncontrollably toward bankruptcy. Sales to the U.S. auto industry were sharply off, and some of Firestone's most faithful customers, like Ford, had been turning to France's Michelin for radial tires for certain models. In addition, Firestone was reeling from a 1978 agreement with the Government forcing it to begin recalling up to 10 million of its 500 radial because of possibly dangerous defects. Related consumer and class-action lawsuits against the company sought damages of up to $2 billion. Company debt exceeded $1 billion, and losses for Firestone's 1980 fiscal year reached $106 million.

It looked like a crisis that could be dealt with only by an expert in the tire industry. But the board of directors unexpectedly went outside the business and chose John Nevin, 54, the silver-haired chairman of Zenith Radio Corp., to head Firestone. Nevin was not a total stranger to Firestone's world. Earlier in his career, he had been general manager of Ford Motor Co.'s parts division. Says he: "I knew tires and tire companies well."

In December 1979, Nevin arrived in Akron with a mandate to do whatever was necessary to save the company. "I took over with my eyes wide open," he recalls," but I was not aware of how critical the cash problems were." Indeed, in the three years preceding Nevin's arrival, Firestone had a negative cash flow of $400 million.

Nevin moved swiftly. During 1980 he cut excess capacity by closing seven Firestone tire plants in the U.S. and Canada, leaving ten, and reduced employment from 107,000 to 83,000. He slashed plant capacity, in part because he believes that tire sales in the foreseeable future will not return to the levels set during the early 1970s. Reasons: radials wear much longer than bias tires, and auto production is unlikely to reach its prior peak levels.

This tough action was probably the only thing that saved the company. Says Nevin: "In the first year I had the image of a hatchet man. It was a damned unpleasant way to make a living." Production of so-called private-label tires, those sold at service stations under oil company names, for example, was cut drastically. "For too long," said Nevin, "Firestone's objective was to take any business just to fill idle capacity, even though the profits were marginal. Our productivity problem was self-inflicted."

Firestone's survival was also helped by some important concessions from the United Rubber Workers union. In Noblesville, Ind., Firestone workers took a pay cut to save jobs. In Memphis, employees agreed to reduce 20 work classifications to five. Says Nevin: "We now get 30% more production out of the same equipment and overhead costs."

To cut overhead further, Nevin sold the Firestone Plastics Co. to Occidental Petroleum for $200 million, omitted two dividends to shareholders, peddled two luxury corporate jets and put the Firestone Country Club up for sale. Says Nevin: "After cutting 24,000 jobs, we had no business running a country club for a thousand employees."

Although it was painful, the corporate shrinking operation achieved dramatic results. For the first nine months of the 1981 fiscal year, net income switched from a loss of $98 million in 1980 to a profit of $ 121 million. Debt was cut in half. Firestone's remaining plants are now operating at a brisk 90% of capacity, and probably will stay at a healthy 85% even if the current recession gets worse.

The problems with radial tires now seem to be behind Firestone. Almost all of the ones with possible defects have been recalled and replaced by the 721 radial, which is regarded by industry experts as equal in quality to anything Michelin or Goodyear offers. More than half of the lawsuits by individuals arising from the troublesome tires have been settled, and the remaining cases do not pose a threat to the company's existence.

Firestone's share of the U.S. tire market has dropped from an estimated 22% in 1978 to the current 15%, but Nevin is keeping his eye fixed on profits. Says he: "One of the ways we got into trouble was desperately chasing Goodyear. I'd rather be 30% behind Goodyear, but earning a 15% profit on equity."

Nevin would like to increase income further in coming years by expanding auto service at Firestone's nationwide network of 4,500 dealers and 1,400 retail stores. Says he: "One-third of U.S. gas stations are going out of business, and so will up to 20% of the auto dealerships." Those outlets have traditionally performed about 60% of routine auto servicing, and Firestone wants to take over more and more of that business.

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