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‘They’re practically printing money’: How Goodyear went from commodity business to supercharged stock

December 28, 2021, 1:00 PM UTC

As the auto industry navigates through multiple revolutions—electrification, autonomy, transportation as a service—it’s tempting to suppose that at least a vehicle’s tires remain serenely untouched. They’re still round, black, and made of rubber, and every vehicle still needs them. Yet it turns out that each disruption of the auto industry demands innovative strategic responses from tiremakers. “We call it FACE,” says Goodyear Tire & Rubber CEO Rich Kramer. “It’s a world of fleets, autonomous, connected, and electric.” How Goodyear rethinks its strategy is a useful model for any company adapting to digital tumult.

Tires are becoming internet-connected devices, and, as in pretty much every industry, data is becoming the coin of the realm. “We’re not just a manufacturing company, and we’re not just a tire sales company,” Kramer says. “We’re a technology-driven mobility company.” Round, black, rubber tires alone aren’t good enough anymore.

Goodyear has lately been thriving in this new environment. Like the rest of the industry, the company struggled in the three years before the pandemic, battered by intense competition and rising raw material costs; Goodyear’s stock suffered more than most, in part because of the company’s heavy debt load. But after bottoming early in the pandemic, the stock has quadrupled. Profits have trounced Wall Street expectations in each of the past four quarters, especially in the most recent quarter. “Goodyear has taken over the industry, and they’re practically printing money,” CNBC’s Jim Cramer enthused last month. “The analysts keep underestimating Goodyear, and they underestimate the management, too, and until they raise their estimates quarterly, I think this one keeps going higher.”

Rich Kramer, 58, began his career as an accountant with PricewaterhouseCoopers. Goodyear hired him as a finance executive in 2000, and he became CEO in 2010. His office in Akron is only about 40 miles from where he was born, in Cleveland.

“The tire industry is a tough industry,” he says. “It’s cyclical, with a lot of competitors—a lot of low-cost competitors.” It’s also consolidating. Goodyear became the last significant American maker of car and truck tires last summer after it bought Cooper Tire & Rubber. Globally it’s fourth by tire-related revenue, after Japan’s Bridgestone, France’s Michelin, and Germany’s Continental.

Kramer recently told Fortune the many things an intelligent tire can do, why Goodyear developed a concept spherical tire, the surprising number of reasons why EVs need different tires, and much more.

Why traditional tires just won’t do for an EV

What difference does it make for the tires if a vehicle is powered by electricity rather than gasoline? Turns out it makes several differences. For starters, an EV is much heavier than an internal combustion engine vehicle because of the battery packs. “So the tires have to carry a heavier load, and the construction of the tire has to be engineered for that,” says Kramer. EVs deliver lots more rotational power—torque—to the wheels; that’s why EVs take off like a jackrabbit when your foot touches the accelerator. The tires thus have to be more durable—“otherwise they wear out faster, which is maybe not a bad thing for tires, but ultimately, we care about the consumer.”

Wait, there’s more. Less friction between the tire and the road enables an EV to go farther on a charge. “This is really important to EV makers because of range anxiety,” Kramer says, “and the more we can reduce rolling resistance, the more range a vehicle can get. A 30% decrease in rolling resistance gives you about a 50% or 60% increase in range.” And if you’ve ever driven an EV, you know it’s almost eerily quiet. Manufacturers promote that feature, but tire noise interferes with it. In response, “we put things like foam in the tire to dampen that noise and give the consumer a quieter ride.”

What makes a tire intelligent

In concept it’s pretty simple: Put a sensor in the tire and connect the sensor to the internet. The value lies in what comes next. “With that sensor and our algorithms, we can measure not only what you might expect, which is pressure and temperature, but also increasingly wear and load. We can actually predict what the tread depth of that tire is—we’re learning how to predict that with higher degrees of accuracy.” The next step is using that information to determine friction, the tire’s grip on the road. That data can then be integrated with other data—speed, road conditions, hills, curves—in an autonomous vehicle’s driving systems. Already “we’ve demonstrated that we can stop a car on a used tire about 30% better than without that technology in it.” Goodyear has over a billion miles of data from fleets in which its intelligent tires are working, gathering data, and learning.

How Uber and Lyft will change the tire business

For now, ride-hailing services still depend on humans offering rides in their own cars. But as autonomous vehicles become the norm, the business will shift to fleets of autonomous cars and trucks. As a result, “we have to think about new business models in the context of how we increasingly serve fleets rather than individual owners. We actually do that today with commercial vehicles. We provide very in-depth fleet services to the Schneiders of the world, the J.B. Hunts, the Ryders, and so on. Now we have to think about new business models around how fleets are going to come out.”

While full autonomy hasn’t arrived yet, and intelligent tire technology will continue to advance, some fleets can already take advantage of it. So-called last-mile or middle-mile fleets are those that return to a depot each evening, and “even while those vehicles are just sitting there, we can monitor the state of the tires as well as their performance on the road. We can then predict failures in those tires, and in tests we’ve had about 90% accuracy.” Some recommendations are simple: Put more air in that tire—you’ll get better fuel efficiency or better range if it’s an EV. If the technology predicts a tire failure, “we might say, ‘Change that tire (or do something else with it) before you go out.’ That means higher uptime and lower cost per mile, which is meaningful in the P&L. And as we think about sustainability, it also means fewer breakdowns, which means less congestion on the road, which means less emissions coming out of that vehicle and other vehicles on the road.”

How Goodyear is making tires with soybean oil and rice

Sustainability is a challenge for the tire industry. Through the World Business Council for Sustainable Development, the major companies “put together a project on sustainable natural rubber, from harvesting and transportation to labor and everything else, so we have not only sustainable natural rubber, but all the appropriate practices with that as well. That’s something that, as an industry, we’re proud of and trying to make improvements on.”

The industry has long used synthetic rubber along with natural rubber, “but synthetic rubber is by and large petrochemical-based. So [at Goodyear] we’re replacing some of those petrochemicals with soybean oil.” The company claims the results are at least as good as with petrochemicals. Even more surprising is where Goodyear is finding silica, better known as quartz; finely ground, it’s used in tires to improve traction and reduce rolling resistance. When rice husks are burned, the ash is rich in high-grade silica. “We’re replacing sand-based silica with silica from rice husk ash. It’s taking waste from a different process. These changes make the tire more sustainable and on top of that actually give us better performance.”

Goodyear’s goal is to develop by 2030 a tire that is made of 100% renewable materials. “We know what we need to do to get most of the way there, but we also know there’s going to have to be some invention along the way for us to get to 100%.”

Why Goodyear developed a spherical tire

A tire that looks like a big volleyball sounds crazy; it was created to attract attention and position Goodyear as an innovator. Obvious question: Where would the axle go? Answer: There wouldn’t be any axle; the tires would be held in place by magnetic levitation. Maybe in 40 or 50 years that will be plausible. “We’re a company that enables mobility, and we believe we have to be everywhere mobility is occurring. In that spirit, with things like the spherical tire we’re trying to lean forward and ask what are mobility and transportation going to look like, and what can we develop to be part of that ecosystem?” A vehicle with spherical tires could be more energy efficient than today’s vehicles and could move in smaller spaces, for example moving sideways without changing its direction. “By 2060, I think 70% of the world is going to live in urban environments. That means space is going to be at a premium, cars and transport are going to be different, how they move around cities is going to be different. That spherical tire is a way for us to lean in and really think of what the art of the possible is as mobility develops over the next 50 years.”

Kramer’s strategy for Goodyear in a highly competitive global business

Kramer isn’t betting on any one factor but instead is betting on a combination that he believes is unique in the industry.

“Start with the great relationships we have with the original equipment manufacturers [vehicle manufacturers] everywhere around the world. We’re No. 1 in market share by far here in the U.S., and we’re on the front end of tire technologies that they’re using to make their vehicles unique. Then our products—Goodyear is known to be an innovation leader all around the world. We have a cadence of innovation where our new products come out at least once every two to three years. The products consumers get from us are cutting edge and best performing. Then we have our brand. There’s a statistic that consumers can generally only remember two tire brands, and Goodyear is generally one of those [globally] and in the U.S. is always one of those. And then our retail footprint. We have thousands of retail stores out there, and add to that our digital footprint—we were the first tire manufacturer to go direct-to-consumer.”

That’s five elements—relationships, innovation, quality, brand, retail footprint. “When you put all that together, nobody else can match it. Some tire companies have lower costs, and some absolutely have great brands. There are retailers that have great brands and do a great job, but no one else can put all those pieces together. That’s what separates Goodyear from the pack.”

Why Kramer is enthusiastic about a 123-year-old company

He argues that now is the second inflection point of mobility. The first inflection point was going from horses and buggies to motor vehicles a hundred-plus years ago. The second is the combined revolutions rocking the auto business. “This is a tough industry. But with our innovation, our brand, our team—man, it’s a great time to be in the tire industry.”

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