Goodyear Makes Change

GT- $5

Again competing for stupid management award?

GT had $350 million stashed in The Reserve Fund, the institutional quality money fund that startled investors by breaking the buck, meaning the money fund lost principal --- which is not supposed to happen. Actual losses to the Company are modest, perhaps $2 million. But the greater danger is rekindling memories of the bad old days when the Akron headquarters was in the grip of ignorant and ingenuous leaders.

Remember Celeron? This $450 million dollar acquisition of gas pipeline operations not only coincided with a spiking energy market but also stripped out cash at a time of high interest rates for a business about which management knew nothing.

Even better, the Celeron deal included The All-American Pipeline, a harebrained scheme to ship high-sulfur fuel from California to Texas (my snarky remembrance is asking COO Tom Barret if the phrase “coals to Newcastle” meant anything to him).

I certainly remember CEO Bob Mercer telling analysts facts later disproved about clearances, costs and earnings.

Perhaps this time is different; perhaps the shakeup in the financial department sends a message that excellence, not excuses is the standard. Maybe not.

But it doesn’t matter because, like 1984, 2009 is a time to own GT. The usual cycle argument is compelling at the current stage when tire plants are being shut down and oil price is low. With tire sales down 6% in 2008 and a further 1-2% in early 2009, the aftermarket will bottom out this year --- with further gains in 2010 as OEM sales recover.

More generally, GT’s strategic value as a brand marketer far exceeds the nominal market value of $1.4 billion. The appeal of this global asset (premium quality, premium market) will appreciate in the inevitably inflationary economy.

The reward horizon depends on management. In the best case, they will engineer ongoing productivity and marketing improvements, fully leveraging the Company’s $17 billion in sales. Alternately, as in the late 80’s, a catalyst will emerge.