Motown Down!

NEW YORK (BizBlog100) – Was I early on Goodyear, promoting GT at $8 on Oct 27 (add link)? Sure, but with the stock at $5.75, I’m buying more in un-taxed accounts.

Jim Cramer says run from anything smacking of the automotive. Cramer’s aversion is an encouraging sign, since he is a momentum player and not interested in testing a bottom. By contrast, I am a value investor willing to buy straw hats in winter. To me, the value of the Goodyear trademark alone exceeds the market equity ($1.5 billion = 242 million shares outstanding X $5.75 current price) of the company.

The market shares of the domestic assemblers are deteriorating at the same time that total car sales are declining. Sales rates are at 20-year lows; production rates are still moving lower. The economic and welfare implications of this are severe, especially because of the geographic concentration and the seniority of the affected employees and retirees. These are difficult times in Michigan; these are difficult times for each of the 300,000 families employed by the domestic assemblers and also weighing on the 700,000 working in allied material and component industries.

But the product problems of the Big Three do not apply across the board. In particular, they do not control Goodyear’s prospect. For one thing, transplant manufacturers from Europe and Asia are coping even in the face of negative sentiment and credit conditions. For another, the global character of the tire industry has better prepared GT to maintain technical leadership and effectively compete in premium markets. And, hey, oil is the largest tire industry product cost!

Goodyear does confront the same health and retirement burdens of the auto makers. While I do not know if the type and amount of financial assistance the next administration provides will be meaningful, the development of health care options that relieve heartland industries would be a boon for GT and me.