Firestone decides to sell tires, not make them
Firestone got what it wanted - out of the tire manufacturing business, or nearly out. Too competitive. Mediocre prospects for stockholders. Given the restructuring going on in the tire industry, insiders were not very surprised when Firestone Inc. announced Tuesday that it was selling 75 percent of its tire manufacturing division to Japan's Bridgestone for $1 billion.Skip to next paragraph
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``Everybody felt Firestone would sell that division,'' says Thomas Cooney, editor of Tire Review, an industry publication. ``A lot of people had been wondering about a tie-up between Bridgestone and Firestone.''
Firestone was, in fact, quite well prepared to part with its tiremaking operations. In recent years, Firestone chairman John J. Nevin has restructured the company into several divisions, separating its 3,500 retail tire stores from the manufacturing operations, which also include building products, synthetic rubber, and industrial products. In tandem with this restructuring, the company changed its name from Firestone Tire & Rubber to Firestone Inc.
Firestone will be a much smaller company, with stockholders reaping a bonus from the sale. Bridgestone - which is big in Japan and sells 1 of every 2 tires there - gets a major presence in the United States. It also catapults the company into third place, behind Goodyear and Michelin.
``These things are pretty shocking, but they are predictable,'' says Edward Kaufman, president of Lindsey-Kaufman Company, a consulting company to the automotive industry. ``It's all part of the globalization of the American automotive business.''
When Bridgestone came along, Mr. Kaufman says, Mr. Nevin could see clearly the limited future profits in an industry with intensifying competition. The only option to keep profits for stockholders high was to take the plunge and concentrate on retailing - selling the tires - not making them.
``Firestone management made a rational business decision,'' Kaufman says. ``In light of the competition in this business, they asked themselves: `Is this where we want to place our bets?'''
But the US tire industry's problems go back to the 1950s with the development of the radial tire, Kaufman says.
The American tiremakers, he says, were slow to acknowledge that development of very long-lasting tires (radials) would mean slower unit growth. They stayed too long with older-generation bias-ply tire plants, and the result was overcapacity.
Struggling in the '70s with financial problems created in part by the company's defective Firestone 500 radial tire, America's No. 3 tire company in 1979 brought in Nevin, former chairman of Zenith, the US television manufacturer, to clean up the mess.
Nevin's first flurry of activity was to close almost all of Firestone's inefficient bias-ply manufacturing plants. In 1983 he sold one of the company's major truck tire manufacturing plants in LaVergne, Tenn., to Bridgestone.
Firestone's retreat from tiremaking, a business it had been in since the turn of the century, is a bit misleading in that it seems to imply the company wasn't successful doing it. It was, in fact, very successful and very competitive, with most of its $5.4 billion in sales coming from tire sales.
Firestone was supplying more radial passenger and radial light truck tires to Ford and GM than anyone else, Mr. Cooney says.
Firestone also supplied most of the tires for new Nissan cars made in the United States. It even shipped tires to Toyota in Japan so it could put them on the new cars it shipped back to the US.
``I think it all comes down to the dollar,'' Cooney says. ``The lower dollar makes it possible for Japanese manufacturers to come over and build here and buy plants. That's been the major factor for some time.''