Series of scandals knock the air out of Goodyear

Goodyear trial exhibit – courtesy of Jalopnik

When Montana Skeptic was driven off SA and Twitter last week, I decided to write for Seeking Alpha. This is my first story, appearing today. No single writer will ever be able to replace Montana, but we can and should try to make up with quantity what Elon Musk took away from us in quality. Instead of adding to the pile of stories about the disgusting topic, let’s start at the opposite end of the spectrum, in one of the (usually) least exciting parts of the auto business, and with a company that is involved in bigger, and most of all deadlier scandals than Tesla.

Tire companies are the most boring of the automotive business, except when their products explode. Since the beginning of the year, American tire maker Goodyear has been the topic of a long series of articles written by Jalopnik reporter Ryan Felton. The company’s tires seem to be shortening the golden years of its customers. In court, Goodyear said it has received at least 98 injury and/or death claims over its G159 tire fitted to motorhomes from 1996 to 2003, when production was quietly stopped. “I believe it to be the worst tire made in history,” declared David Kurtz, a lawyer representing victims of the killer tire. But wasn’t the worst tire in history the Firestone tire infamously fitted to the Ford Explorer in the late 90’s, creating a scandal that would have been the end of Firestone, would it not have been snapped up in a fire sale by Japan’s Bridgestone a decade earlier?

In a Jan. 8 court filing, the lawyer revealed a monstrous stats, saying that the tire’s failure “means that 1 out of 10 motorhomes using the G159 experienced a failure resulting in a claim for property damage, injury or death.” The filings suggest that the failure rates of the Goodyear tires were catastrophically worse than those of the infamous Firestone tires.

In January, the first of a series of scandal stories appeared. The stock price went down 40%

Scandal stories send stock into a dive

Not too coincidentally, as more and more articles appeared about the deadly tire in the course of the past six months, Goodyear’s stock went into a steady tailspin. In late January, when Felton posted the first in a long series of hard-hitting Goodyear stories, the Goodyear share still changed hands at $36 and change. Last Thursday, it had lost more than 40% of its value, closing at $20.15. On Friday, it added $2, as investors caused a miniature rally in anticipation of good news being announced in an analyst call after the close.

Lackluster growth …

The call wasn’t worth the 2 bucks. The words “lackluster growth” were uttered a few times by Goodyear’s CEO Rich Kramer. And right he was: Goodyear’s Q2 ended with 4% more revenue, and 6.4% better income. But don’t get used to it: attacked on three flanks by higher raw material costs, softer foreign currencies, and a deteriorating Total Industry Volume, Goodyear took its 2018 guidance down, while maintaining a slightly rosier outlook for 2020.

… and doubtful achievability

Analysts sniffed the roses, and wrinkled their noses. “I believe there is very little optimism out there in the market on your 2020 plans,” Ashik Kurian of Jefferies said. Politely as possible, Morgan Stanley’s Armintas Sinkevicius pushed the knife a little deeper, telling Kramer: “You’ve had a challenging time with near-term guidance. Given the guidance for 2018, investors are going to discount the guidance for 2020.” Morgan Stanley has a hard time recommending the Goodyear share, Sinkevicius intimated, because “some of the investors that we talked to would really like to get involved with the stock, but you know I have a hard time with estimate achievability.” Kramer had no real answer.

But it is really just the doubts about achievability what is behind the Goodyear share’s tailspin? Not even once during the call was Goodyear asked about the risks posed by the killer tires, a fact that made the man who has been relentlessly on top of the sordid story for most of the year send out this tweet.

Felton's tweet

Let’s do what the analysts on the call did not. Let’s talk about the brewing scandal. Or rather make that scandals. As we dig deeper into the matter, we shall see that G159 is just one scandal of many hanging around the necks of Goodyear.

Hidden scandal

The Goodyear G159 tire has been a constant problem since it was introduced in 1996. Instead of recalling the tire, and replacing it with a better one, Goodyear worked diligently in court to hide its dangers. Goodyear’s lawyers worked aggressively to settle all G159 deaths.“Some deaths and injuries weren’t even reported to federal safety officials, and no recall has ever been ordered,” wrote Jalopnik. “Part of that has to do with Goodyear’s aggressive effort to settle cases, handled by company attorneys who withheld crucial data from plaintiffs, according to a federal judge’s ruling. In each case, judges signed off on protective orders that allowed Goodyear to designate crucial documents, testimony and internal data as “confidential,” and the decisions meant victims of G159 tire failures couldn’t disclose any of that information to other victims with similar claims or regulators.”

Multiple senior executives signed off on wiping the scandal under the rug via quiet settlements while the public was left in the dark.“The settlement memos were reviewed and approved by multiple layers of Goodyear management,’ Jalopnik cited a court filing. ‘The memos repetitively identified Goodyear’s understanding that there had been more than 400 property damage and bodily injury claims involving the G159 on motorhomes.”

Well, there was one attempted recall: When previously secret court records were unsealed and made their way to Jalopnik, Goodyear lawyers wanted their records back, and petitioned the judge to call Jalopnik, and ask the website to “do the right thing” and not publish the documents. “The judge denied Goodyear’s request, never made that call and we published our story,” Jalopnik wrote.

NHTSA investigates

After many years of silence, the National Highway Traffic Safety Administration NHTSA has finally opened an investigation into the matter, saying that the data for the defect claims “was sealed under protective orders and confidential settlement agreements, precluding claimants from submitting it to NHTSA.” The TREAD act, an outcome of the Firestone scandal, requires manufacturers to report death and injury clams, and Goodyear could face a $105 million fine if it failed to properly report crashes to federal regulators, NHTSA’s chief, Heidi King, told Congress. However, the TREAD act reporting rule came in effect in 2002, with the first reports due in Q2 of 2003. Goodyear stopped making the tires in 2003. The NHTSA says it is “is examining whether there were any violations of these or other reporting obligations.”

History of silent recalls

Goodyear has a long and not so glorious history of keeping defects under wraps. “Goodyear Tire & Rubber Co. for more than four years has been quietly replacing thousands of failed tires fitted on vans, light trucks and sport-utility vehicles and writing checks to customers, but only for those who complain, according to tire dealers and consumers,” wrote the LA Times. In case customers reported their tire tread separated, dealers were instructed to simply replace the tires, the paper wrote.

Goodyear “among the deadliest manufacturers in the nation for workers”

To the people who make them, Goodyear tires can be deadly even before they are sold. Since August 2015, five Goodyear workers have been killed – four at Goodyear’s Fayetteville, VA, plant in one year alone, wrote Reveal after an analysis of data from the federal Occupational Safety and Health Administration OSHA. Since October 2008, Goodyear has been fined more than $1.9 million for 198 health and workplace safety violations, “far more than its four major competitors combined,” writes Reveal.

The atrocious working conditions could be among the causes of the faulty tires. Workers at Goodyear’s Danville, VA, plant told Reveal about water leaking through the roof and gushing through manholes when it rained. “Workers are trained to avoid moisture in the production process because it can prompt tire treads to separate, causing a blowout,” writes Reveal.

62,000 Asbestos-related claims

Asbestos can be extremely hazardous to a company’s health. Around 60 companies in the U.S. “have filed for bankruptcy and set up trusts to help them deal with the number of individuals who have been affected by their products,” wrote the Asbestosnetwork in 2015. Goodyear is not (yet) among those committing corporate hara-kiri, but asbestos-related claims are a huge drain on the company.

“About 62,000 claims are pending against Goodyear in states including Florida, Maryland, New York, Pennsylvania and Texas over alleged exposure to asbestos-containing products as floor tiles, furnace hoses, gaskets and heat shields,” Warren Buffett’s Berkshire Hathaway Specialty Insurance Co told Reuters. In April last year, Berkshire sued Goodyear, alleging it covered up asbestos related injury claims it kept dormant for years. Three months later, the matter was, once again, quietly settled out of court.

And the hits, they keep on coming

Lilly Ledbetter is a retired grandmother, and the namesake to the Lilly Ledbetter Fair Pay Restoration Act. She worked for Goodyear, and sued for unfair pay practices. In Africa, Goodyear paid $3.2 million in bribes to officials, and then in America $16 million to settle the charges with the SEC. In the U.S. and Canada, 14,000 Goodyear workers went on strike over “unfair treatment.” The strike did cost Goodyear between $360 and $420 million. And on it goes, and on, and on. However, my first story in Seeking Alpha already is exceeding 1,500 words, well in excess of the 1,000 words regarded as barely tolerable.

So, in the interest of sudden brevity: There is way too much excitement to be healthy for a boring old tiremaker.