This report, updated on October 24, 2025, offers a comprehensive evaluation of The Goodyear Tire & Rubber Co. (GT) across five key areas, including its business moat, financial health, and fair value. Our analysis provides crucial context by benchmarking GT against major competitors like Michelin (ML) and Bridgestone (BRDCY), with all insights framed by the investment principles of Warren Buffett and Charlie Munger.
The overall outlook for Goodyear is Negative.
The company struggles under a massive $9 billion debt load and chronically low profit margins.
Financial performance is weak, with the company recently burning through -$490 million in cash in one year.
Goodyear consistently underperforms more profitable global competitors like Michelin and Bridgestone.
While its brand is well-known, this is offset by significant operational issues and a strained balance sheet.
Future growth is uncertain, with its turnaround plan facing significant hurdles and high execution risk.
US: NASDAQ
The Goodyear Tire & Rubber Company operates a straightforward business model centered on the design, manufacturing, distribution, and sale of tires for nearly every type of vehicle imaginable. As one of the world's largest tire companies, its core operations revolve around producing tires for cars, trucks, buses, aircraft, and farm equipment. The company's business is primarily segmented into two major channels: the Original Equipment (OE) market, where it sells tires directly to vehicle manufacturers to be installed on new vehicles, and the replacement market, where it sells to consumers through a vast network of dealers, retailers, and its own service centers. Beyond tires, which account for the vast majority of its revenue, Goodyear also runs a network of automotive service centers and a chemical business that produces synthetic rubber and other materials, partly for its own use and partly for external sale. Its primary markets are geographically diverse, with major operations in the Americas, Europe, the Middle East, Africa (EMEA), and the Asia-Pacific region, making it a truly global player.
The largest and most profitable part of Goodyear's business is the replacement tire market. This segment involves selling tires to consumers and commercial fleets to replace worn-out or damaged tires. In fiscal year 2024, replacement tires accounted for approximately 120.7 million units, representing over 70% of the company's total tire volume and a proportionally large share of its ~$16 billion in tire sales. The global replacement tire market is immense, valued at well over $150 billion, and its growth is driven by the steady, predictable need to replace tires on the billions of vehicles already in operation worldwide. This makes it less cyclical than new car sales. However, competition is incredibly fierce, ranging from premium peers like Michelin and Bridgestone to a growing number of aggressive mid-tier and budget brands, especially from Asia. Consumers, who are the ultimate buyers, typically spend between $400 and $1,500 for a new set of tires. While brand loyalty exists, many buyers are price-sensitive, creating a constant pressure on margins. Goodyear's moat in this segment is built on its iconic brand—one of the most recognized in the automotive industry—and its massive, entrenched distribution network. This combination of brand trust and widespread availability gives it a durable advantage, but one that requires constant investment in marketing and innovation to defend against competitors.
Goodyear's second major tire segment is the Original Equipment (OE) market, which supplied 45.9 million units in fiscal year 2024. In this business, Goodyear acts as a direct supplier to automakers like General Motors, Ford, and Volkswagen. While smaller in volume than the replacement market, the OE business is strategically vital. The global market for OE tires is directly tied to new vehicle production, making it highly cyclical and subject to the boom-and-bust cycles of the auto industry. Profit margins are notoriously thin because automakers wield immense purchasing power and negotiate fiercely on price. Competition is an oligopolistic battle among a handful of global giants, including Goodyear, Michelin, Bridgestone, and Continental. The primary consumer is the automaker, and relationships are built on long-term contracts known as 'platform awards,' which can last for the entire 5-7 year production run of a vehicle model. This creates very high switching costs for the automaker mid-cycle, making the revenue stream sticky and predictable once a contract is won. Goodyear's moat here is its global manufacturing footprint, which allows it to supply auto plants around the world on a just-in-time basis, and its deep engineering capabilities that allow it to co-develop tires specifically tailored to new vehicle models. This scale and technical expertise create significant barriers to entry for smaller players.
Beyond tire manufacturing, Goodyear operates a sizable retail and service business, which generated $905 million in 2024 revenue. This network includes company-owned Goodyear Auto Service centers and franchised locations, offering consumers a one-stop-shop for tires and general automotive maintenance and repair. This business competes in the vast but highly fragmented auto aftermarket service industry against car dealership service departments, national chains like Midas and Bridgestone's Firestone Complete Auto Care, and thousands of independent local garages. The end consumer is any vehicle owner in need of service. Customer stickiness in this segment is relatively low, as switching mechanics or service centers costs nothing, and trust must be earned with every visit. The competitive advantage, or moat, for Goodyear's retail operations stems almost entirely from its powerful brand name, which serves as a beacon of trust and quality for consumers. This vertical integration also provides a controlled, high-visibility sales channel for its primary tire products, ensuring they are prominently featured and expertly installed. However, the moat is considered narrower than its tire manufacturing business due to the intense, localized nature of service competition.
Finally, the company's smallest segment is its chemical business, which contributed $504 million in 2024 revenue. This division produces synthetic rubber and various polymers and resins, which are key raw materials in tire production. A portion of this output is consumed internally by Goodyear's tire plants, while the rest is sold to external industrial customers. The market is a specialized subset of the global chemical industry, competing with large-scale chemical producers. For Goodyear, this business functions mainly as a form of vertical integration, giving it a degree of control over the supply and cost of critical inputs. This can provide a modest competitive edge in managing production costs and mitigating supply chain disruptions. As a standalone business selling to third parties, its moat is limited, as it lacks the scale of dedicated global chemical giants. Its primary value is strategic, supporting the resilience and efficiency of the core tire manufacturing operations.
In summary, Goodyear's competitive moat is primarily constructed from two key elements: an iconic brand built over more than a century and the immense global scale of its manufacturing and distribution operations. The brand fosters trust and allows for premium pricing in the crucial replacement market, which is the company's main profit driver. Its global scale creates massive barriers to entry, enabling it to compete for and win low-margin but high-volume OE contracts, which in turn feeds the future replacement cycle. This combination of intangible brand value and tangible scale advantages gives Goodyear a durable position in the global automotive ecosystem.
However, the durability of this moat should not be overstated. The tire industry is mature, capital-intensive, and highly cyclical, which inherently limits long-term profitability and growth prospects for all players. The most significant threat comes from the relentless competitive pressure from both established premium rivals and a growing number of capable, low-cost manufacturers. This dynamic constantly squeezes pricing power and forces heavy investment in R&D and marketing just to maintain market share. The ongoing transition to electric vehicles (EVs) is another critical factor; while it creates opportunities for Goodyear to sell higher-value, specialized EV tires, it also introduces new technological challenges that could potentially allow competitors to gain an edge. Therefore, while Goodyear possesses a wide economic moat, it is one that requires constant and vigilant defense in a fundamentally tough industry.
A quick health check of Goodyear's financials reveals several immediate concerns for investors. The company is not profitable right now, with a massive trailing-twelve-month net loss of $-1.73B, driven by a huge $-2.2B loss in the most recent quarter (Q3 2025). This loss included significant non-cash charges like a $674M goodwill impairment, but core operations are also struggling. More importantly, Goodyear is not generating real cash. Free cash flow (FCF), which is the cash left over after running the business and investing in its future, has been consistently negative, coming in at $-490M for the last fiscal year and $-181M in the latest quarter. This means the company is spending more cash than it brings in. The balance sheet does not look safe either, with total debt at a high $9.17B and cash at only $810M. This combination of unprofitability, cash burn, and high debt signals significant near-term financial stress.
An analysis of the income statement shows that Goodyear's profitability is both weak and deteriorating. For its last full fiscal year (2024), the company reported revenues of $18.88B and a razor-thin net profit of $70M. However, performance has worsened recently, with revenues declining 3.71% in the latest quarter compared to the prior year. The company's margins tell a story of weak pricing power and cost control issues. While the gross margin of 18.17% in Q3 2025 appears stable, the operating margin was a mere 1.68%. This indicates that operating expenses are consuming almost all the profit from sales. For investors, this is a critical weakness; it suggests the company is struggling to pass on rising costs for materials and labor to its customers, leading to a collapse in profitability. The massive net loss in the latest quarter confirms that the company's earnings power is currently broken.
One of the most important questions for investors is whether a company's reported profits are turning into actual cash. In Goodyear's case, the answer is a clear no, indicating poor earnings quality. While the company's massive Q3 2025 net loss of $-2.2B was much worse than its operating cash flow (CFO) of $2M, this was because the loss was inflated by large non-cash expenses like impairment charges. A more telling sign is the consistent inability to generate positive free cash flow (FCF), which has been negative for the last annual period ($-490M) and both recent quarters ($-387M in Q2 and $-181M in Q3). The balance sheet shows why cash is lagging: working capital is a persistent drag. In Q3, for example, the company's cash was negatively impacted by a $79M increase in inventory and a $107M increase in accounts receivable. This means cash is getting tied up in unsold products and unpaid customer bills instead of flowing to the company's bank account.
Looking at the balance sheet, Goodyear's financial foundation appears risky and lacks resilience. The company is operating with a high level of leverage, or debt. As of the latest quarter, total debt stood at $9.17B, while shareholders' equity was only $3.18B, resulting in a high debt-to-equity ratio of 2.89. This level of debt is concerning on its own, but it becomes more alarming when compared to the company's cash and earnings. With only $810M in cash, Goodyear has a large net debt position of $8.36B. The company's liquidity, or its ability to meet short-term obligations, is also thin. The current ratio is 1.27, which provides a small cushion, but the quick ratio (which excludes less-liquid inventory) is below 1.0, a potential warning sign. Most critically, Goodyear's operating income of $78M in Q3 was not even enough to cover its interest expense of $114M for the period. This inability to service its debt from core operations places the balance sheet firmly in the 'risky' category for investors.
Goodyear's cash flow engine, which should fund its operations and investments, is currently sputtering. The primary source of cash, cash from operations (CFO), has been highly uneven, swinging from $-180M in Q2 2025 to just $2M in Q3. This is far from the dependable cash generation investors look for. Despite this weakness, the company continues to spend heavily on capital expenditures (CapEx) to maintain and upgrade its facilities, with outlays of $183M in the last quarter alone. Because CFO is not sufficient to cover this CapEx, the company's free cash flow is consistently negative. To plug this cash shortfall, Goodyear is relying on external financing. In the last quarter, it increased its net debt by $209M. This shows that instead of operations funding the business, the business is being funded by taking on more debt, an unsustainable situation.
Given its financial struggles, Goodyear's capital allocation strategy is one of preservation, though it still raises some concerns. The company currently pays no dividend, which is an appropriate and necessary decision. Paying out cash to shareholders when the core business is burning cash would be a major red flag. However, the company is not reducing its share count through buybacks either. Instead, the number of shares outstanding has been slowly creeping up, from 285M at the end of FY2024 to 286.1M in the latest quarter. While minor, this represents dilution, meaning each investor's slice of ownership is getting slightly smaller over time. The primary destination for any capital is reinvestment back into the business via CapEx. But since this spending is not being funded by internal cash flows, it is being supported by an increase in debt. This strategy of stretching the balance sheet to fund operations and investments is unsustainable and adds risk for shareholders.
In summary, Goodyear's financial statements paint a picture of a company with few strengths and several significant red flags. The main strength is its large, established revenue base ($18.31B TTM), which provides scale in the global tire market. However, this is overshadowed by critical weaknesses. The first major red flag is the persistent negative free cash flow ($-181M in Q3), which shows the business is fundamentally burning cash. The second is the high and burdensome debt load ($9.17B), creating a risky balance sheet. The third, and perhaps most serious, red flag is the company's inability to cover its interest expense with its operating income, a classic sign of financial distress. Overall, the financial foundation looks exceptionally risky. The combination of unprofitability, cash burn, and high leverage suggests the company is in a precarious position that requires a significant operational turnaround.
A look at Goodyear's recent history reveals a company grappling with significant volatility. When comparing the last three fiscal years (FY2022-2024) to the last five (FY2020-2024), a clear picture of decelerating momentum and persistent cash burn emerges. For example, revenue growth, which was strong in the post-pandemic rebound of FY2021 and FY2022, has turned negative in the last two years. The five-year period was marked by sharp swings, but the more recent trend is one of contraction. Operating margins have remained thin and unpredictable, averaging just 2.99% over the five-year period. More concerning is the deterioration in free cash flow (FCF). While the five-year average FCF was already negative, the average over the last three years has worsened considerably, showing a deepening inability to generate cash after funding its extensive capital needs.
This trend underscores the challenges in converting revenue into profit. The company's performance has been a rollercoaster, driven by economic cycles, acquisitions, and operational hurdles. While the top line is large, it lacks stability and has not shown a consistent growth trajectory. This inconsistency makes it difficult for the company to achieve the scale benefits that are crucial in the auto components industry, where stable, predictable earnings are highly valued.
From an income statement perspective, Goodyear's track record is fraught with weakness. Revenue grew impressively from $12.3 billion in FY2020 to a peak of $20.8 billion in FY2022, aided by a major acquisition and market recovery. However, it has since declined to $18.9 billion in the latest fiscal year, indicating that the growth was not sustainable. Profitability has been even more concerning. Gross margins have been erratic, swinging from a high of 22.29% in FY2021 down to 17.47% in FY2023, highlighting vulnerability to input costs and pricing pressures. This volatility cascades down to the bottom line, with Goodyear posting significant net losses of -$1.25 billion in FY2020 and -$689 million in FY2023. The inability to consistently deliver profits despite a massive revenue base is a major historical red flag for investors.
The balance sheet offers little comfort, revealing a company operating with high leverage and tight liquidity. Total debt has remained stubbornly high, consistently hovering between $8.4 billion and $8.9 billion in the last four years. This has resulted in a high debt-to-equity ratio of around 1.8x, indicating a significant reliance on borrowing. This level of debt is a major risk, especially for a company with such volatile earnings and cash flow. Liquidity also appears strained. The current ratio, a measure of a company's ability to pay its short-term bills, has consistently stayed near 1.0, which provides a very thin safety cushion. Cash on hand has also dwindled from $1.5 billion in FY2020 to $810 million in FY2024, further reducing financial flexibility. The overall trend points to a worsening risk profile.
Goodyear's cash flow performance paints the most concerning picture. The company has struggled to consistently generate positive cash from its operations after accounting for capital expenditures (capex). Operating cash flow has been positive but highly variable, while capex has been consistently high and rising, reaching $1.19 billion in the latest year. The result is a deeply negative free cash flow (FCF) in three of the last five years. The company burned through -$540 million in FY2022, -$18 million in FY2023, and -$490 million in FY2024. This cash burn is a critical weakness, as it shows the business is not self-funding and must rely on debt or issuing new shares to operate and invest.
Regarding shareholder actions, the company's past moves reflect its financial struggles. Goodyear paid a small dividend in FY2020 but suspended it thereafter, a necessary step to preserve cash. Instead of returning capital to shareholders, the company has done the opposite. The number of shares outstanding has increased significantly, from 234 million in FY2020 to 287 million in FY2024. This represents a dilution of nearly 23%, meaning each shareholder's ownership stake in the company has been reduced.
From a shareholder's perspective, this dilution has been destructive. The increase in share count was not met with a corresponding improvement in per-share performance. For instance, FCF per share plummeted from a positive $2.00 in FY2020 to a negative -$1.70 in FY2024. This shows that capital allocation has not been shareholder-friendly. The company has prioritized funding its operations, investments, and acquisitions over shareholder returns, but these investments have yet to produce consistent, positive results on a per-share basis. The suspended dividend is currently unaffordable given the negative free cash flow, and its reinstatement is not a near-term possibility without a dramatic turnaround in cash generation.
In conclusion, Goodyear's historical record does not inspire confidence in its execution or resilience. The performance over the last five years has been exceptionally choppy, marked by revenue volatility, weak margins, and significant cash burn. The company's primary historical strength is its sheer scale and brand recognition, which allows it to generate substantial revenue. However, its single biggest weakness has been the persistent inability to convert that revenue into sustainable profit and free cash flow, all while carrying a heavy debt load and diluting shareholders. The past does not support a thesis of a steady and reliable operator.
The global tire industry is mature, with forecasted growth in the low single digits, around a 2-3% CAGR over the next 3-5 years. The market's future is not about explosive volume growth but about significant shifts in product mix and technology. The most impactful trend is vehicle electrification. Electric vehicles (EVs) are heavier, deliver instant torque, and require quieter operation, necessitating specialized tires that command premium prices. This creates a significant opportunity for manufacturers to increase revenue per unit. A second key shift is the continued consumer preference for SUVs and light trucks, which use larger and more expensive tires than traditional sedans, boosting profitability. Lastly, sustainability is becoming a key purchasing factor, driving R&D into renewable materials and more efficient manufacturing processes.
Catalysts for demand include an aging global vehicle fleet, which shortens the replacement cycle for some consumers, and stricter environmental and safety regulations. For example, new EU regulations on tire labeling for fuel efficiency, wet grip, and noise push consumers towards higher-spec, higher-margin products. Despite these opportunities, the competitive landscape remains intense. The industry is an oligopoly dominated by Goodyear, Michelin, and Bridgestone, with high barriers to entry due to immense capital requirements for manufacturing and global distribution networks. It is very difficult for new players to achieve the necessary scale, so the competitive set is unlikely to change dramatically. The primary threat comes from existing low-cost Asian manufacturers expanding their presence in Western markets, which puts a ceiling on pricing power across all tiers.
Goodyear's largest and most profitable segment is the consumer replacement tire market. Current consumption is driven by the sheer number of passenger vehicles in operation globally—over 1.5 billion—and the non-discretionary need to replace worn tires every 3-5 years. Consumption is currently limited by household budgets, which can lead consumers to delay purchases or trade down to cheaper, private-label brands, and by intense price competition from retailers. Over the next 3-5 years, consumption of premium tires for EVs and SUVs is expected to increase significantly as these vehicles make up a larger portion of the car parc. Conversely, demand for smaller, lower-margin tires for sedans will likely decline. The catalyst for this shift is the accelerating adoption of EVs and the enduring popularity of larger vehicles. The global passenger replacement tire market is valued at over $75 billion.
In this segment, customers choose tires based on a mix of brand trust, performance reviews, dealer recommendations, and price. Goodyear competes with premium brands like Michelin and Bridgestone, and a host of mid-tier and budget brands like Hankook and Cooper (which Goodyear now owns). Goodyear tends to outperform in the mid-to-premium segment where its brand recognition is a major asset. It is likely to lose share in the deep-budget category to low-cost imports. The number of major global tire manufacturers is stable and unlikely to change due to the high barriers to entry. A key risk for Goodyear is a prolonged economic downturn, which would accelerate consumer trade-down to cheaper brands, directly hitting revenue and margins. This risk is medium-to-high, as it could compress margins by 1-2% if a recessionary environment persists.
In the commercial replacement tire segment, which serves trucking fleets, consumption is tied directly to economic activity and freight volumes. It is currently constrained by the high operational costs fleet managers face, making them extremely sensitive to the total cost of ownership (TCO), which includes the tire's purchase price, its impact on fuel economy, and its durability for retreading. Over the next 3-5 years, consumption will shift towards tires with lower rolling resistance to save fuel and an increased use of retreading services to extend asset life. A catalyst for growth is the continued expansion of e-commerce, which increases last-mile delivery miles and wears out tires faster. The global commercial tire market is estimated to be worth over $65 billion. Competition is fierce, with Michelin and Bridgestone holding strong positions based on their product's TCO performance and fleet management solutions. Goodyear competes effectively through its extensive service network and durable products, but gaining significant share is difficult. The primary risk is an economic recession that sharply reduces freight demand, which would immediately lower tire sales to commercial fleets. The probability of this is medium.
Goodyear's Original Equipment (OE) business, selling directly to automakers, is driven by new vehicle production schedules. This market is characterized by long-term contracts, intense price pressure, and very thin margins. Over the next 3-5 years, the critical battleground for consumption will be securing platform awards for high-volume EV models. Winning an OE fitment on a popular EV like the Ford F-150 Lightning or a Tesla model is strategically crucial because it establishes the brand with the vehicle owner, creating a strong pull-through for the first, highly profitable replacement cycle. OE volumes will largely track global light vehicle sales, projected to grow at only 1-2% annually. The key change is the mix, not the volume. Automakers choose suppliers based on global supply capability, engineering collaboration, and cost. Goodyear must win its fair share of these EV platforms to secure its future replacement market. The risk here is losing a key platform to a competitor, which could lock Goodyear out of a specific model's replacement cycle for years. Given the intense competition for these awards, this risk is medium.
Looking ahead, Goodyear's future is heavily influenced by its 'Goodyear Forward' transformation plan. This strategy aims to generate over $1 billion in annual cost savings by 2025 and streamline the company's portfolio by divesting its chemicals, off-the-road equipment tire, and Dunlop brand businesses. The goal is to focus exclusively on the higher-margin consumer tire market and reduce its debt load. The success of this plan is a critical internal catalyst. If executed effectively, it could significantly improve profitability and cash flow, even in a low-growth environment. However, it also carries execution risk. Failure to achieve cost targets or to secure good prices for divested assets could undermine the plan's benefits, leaving the company in a weaker competitive position. This strategic overhaul, more than any single market trend, will likely determine the company's performance over the next five years.
As of 2025-12-26, Close $12.50 from NASDAQ. At this price, Goodyear’s market capitalization is approximately $3.58B. The stock is currently trading in the lower third of its 52-week range of $10.00 - $18.00, suggesting weak market sentiment. For a cyclical industrial company like Goodyear, valuation typically hinges on earnings and cash flow, but the current picture is dire. The most critical valuation metrics are currently flashing warning signs: the P/E (TTM) is not meaningful due to a net loss of $-1.73B; Free Cash Flow (TTM) is negative at $-490M, resulting in a negative yield; and the dividend yield is 0% as the dividend was suspended. The key multiple to watch is EV/EBITDA, which provides a view of value before interest and taxes, but even this must be viewed cautiously. The prior financial analysis concluded the company is burning cash and its balance sheet is risky, which explains why the market is assigning it a low valuation. The consensus view from market analysts offers a glimmer of potential upside but comes with high uncertainty. Based on a survey of 10 analysts, the 12-month price targets for Goodyear are: Low: $10.00 / Median: $15.00 / High: $20.00. The median target of $15.00 implies an Implied upside of 20% vs today’s price. However, the Target dispersion is very wide (a $10.00 range from low to high), signaling a significant lack of agreement among analysts about the company's future. This wide range reflects deep uncertainty surrounding the success of the 'Goodyear Forward' turnaround plan and the company's ability to navigate its financial challenges. Analyst targets are not a guarantee; they are based on assumptions about future earnings and multiples that may not materialize. A traditional Discounted Cash Flow (DCF) analysis, which values a business based on its future cash generation, is not feasible or reliable for Goodyear at this time. The prior financial analysis revealed that the company has a consistent history of negative free cash flow (FCF), including $-490M in the last fiscal year and $-181M in the most recent quarter. It is impossible to build a credible valuation by discounting future cash flows when the starting point is negative and there is no clear visibility on when, or if, it will turn sustainably positive. Any assumptions about future FCF growth would be pure speculation. This inability to perform a standard intrinsic value calculation is a major red flag in itself. A reality check using yields confirms the stock's lack of appeal for investors seeking cash returns. The FCF yield is negative because the company is burning cash, a critical failure for an industrial company. Similarly, the dividend yield is 0%, as management correctly suspended it to preserve cash, and share buybacks are non-existent. Comparing Goodyear's current valuation multiples to its own history is challenging due to its poor performance. Its forward EV/EBITDA multiple of around 5.5x is at the low end of its historical range, but this is appropriate given its deteriorating margins, high leverage, and negative cash flow. Goodyear also appears cheap relative to peers, but its EV/EBITDA discount of 25-30% to the peer median of ~7.5x is justified by its inferior margins and highly leveraged balance sheet. Triangulating these signals leads to a cautious fair value estimate of $9.00 – $14.00, suggesting the stock is currently overvalued. The valuation is entirely dependent on the execution of its turnaround plan, making an investment at the current price of $12.50 a high-risk proposition without a sufficient margin of safety.
Warren Buffett would view The Goodyear Tire & Rubber Co. as a classic example of a business to avoid, despite its iconic American brand. His investment thesis in the auto components sector would be to find a company with an unassailable brand moat that translates into durable pricing power and high returns on capital, much like he found in Coca-Cola. Goodyear fails this test, as its operating margins hover around a thin 2-4%, indicating intense competition and a lack of pricing power compared to rivals like Michelin, which consistently earns 10-12% margins. The most significant red flag for Buffett would be the fragile balance sheet; a Net Debt/EBITDA ratio exceeding 5.0x in a capital-intensive and cyclical industry is the antithesis of the financial fortitude he demands. This high leverage consumes cash flow that should be used for strengthening the business, making it a highly speculative turnaround rather than a predictable earnings machine. Buffett would ultimately conclude that Goodyear is a 'fair' company at best, operating in a tough industry, and would avoid it due to its weak moat, poor profitability, and dangerous debt load. If forced to choose the best companies in this sector, Buffett would prefer the financially sound and highly profitable industry leaders: Bridgestone for its fortress balance sheet (Net Debt/EBITDA <1.0x), Michelin for its powerful brand and pricing power, and Hankook for its superior operational efficiency and margins (12-15%). A change in his decision would require Goodyear to not only reduce its debt to a conservative level (e.g., below 2.0x Net Debt/EBITDA) but also demonstrate a sustained ability to generate double-digit operating margins for several years, proving a fundamental business transformation had occurred.
Charlie Munger would likely view The Goodyear Tire & Rubber Co. as a textbook example of a business to avoid. He would first identify the tire industry as inherently difficult—capital-intensive, cyclical, and brutally competitive, making it a place where only the best operators can thrive. Goodyear, with its persistently low operating margins of 2-4% and a precarious Net Debt/EBITDA ratio exceeding 5.0x, fails the fundamental test of being a high-quality business. Munger would see the high leverage as an unforgivable error, creating immense fragility in a cyclical industry. While the Goodyear brand is recognizable, it lacks the true pricing power of rivals like Michelin or Pirelli, rendering its moat shallow. The takeaway for retail investors is that Munger would see this as a 'too-hard' pile investment; a struggling company in a tough industry is the opposite of the durable, high-return businesses he favored. If forced to choose in this sector, Munger would point to Michelin (ML), Bridgestone (BRDCY), and Hankook (HANKF) as far superior businesses due to their robust operating margins (10-15%), strong balance sheets (Net Debt/EBITDA often below 2.0x), and clear brand or operational advantages. A fundamental, multi-year deleveraging and a sustained improvement in margins to high single digits would be required before Munger would even begin to reconsider his view.
In 2025, Bill Ackman would view Goodyear as a classic, albeit high-risk, activist target. The company's iconic brand and market scale are severely undervalued due to chronic operational underperformance, evidenced by razor-thin operating margins of 2-4% compared to peers like Michelin who achieve 10-12%. While the immense gap in profitability presents a compelling opportunity for a turnaround focused on cost-cutting and portfolio optimization, Goodyear's crippling debt load, with a Net Debt/EBITDA ratio exceeding 5.0x, presents a significant hurdle and financial risk. For retail investors, this means Goodyear is a highly speculative bet on a successful, activist-led restructuring, not an investment in a high-quality business.
The Goodyear Tire & Rubber Co. holds a legacy position as one of the world's largest tire manufacturers, but its standing among elite competitors has been strained by persistent financial and operational challenges. The company operates in the highly competitive and capital-intensive tire industry, where scale, technological innovation, and brand strength are paramount. While Goodyear's brand is globally recognized, it has struggled to translate this into the superior profitability and balance sheet strength demonstrated by market leaders like Michelin and Bridgestone. Its competitive position is often characterized as being caught in the middle—facing pressure from premium brands in high-margin segments and from a growing number of aggressive, lower-cost Asian manufacturers in the mass market.
The core of Goodyear's struggle lies in its financial structure and operational efficiency. The company carries a significant amount of debt, which limits its flexibility to invest in research and development or to weather economic downturns. This high leverage is reflected in its credit rating and makes its earnings more volatile. Its operating margins have historically lagged behind the industry's best performers, indicating challenges with pricing power, cost structure, or both. This financial fragility is a key differentiator when comparing Goodyear to its peers, many of whom boast stronger balance sheets and more consistent cash flow generation, allowing them to invest more heavily in future growth areas like electric vehicle (EV) tires and sustainable materials.
To address these issues, Goodyear has initiated ambitious restructuring plans, such as the "Goodyear Forward" strategy, aimed at optimizing its portfolio, reducing costs, and paying down debt. This involves divesting non-core assets and streamlining its manufacturing footprint. The success of this turnaround is the central factor in the investment case for GT. While these actions are necessary, they also carry significant execution risk. The company must navigate these complex changes while continuing to compete in a fast-evolving market, where the transition to EVs demands new tire technologies focused on noise reduction, durability under higher torque, and efficiency to maximize vehicle range.
Ultimately, Goodyear's competitive standing is that of a legacy giant attempting a difficult pivot. Its success is not guaranteed and depends heavily on management's ability to execute its turnaround strategy effectively. While its stock may appear undervalued on some metrics compared to peers, this discount reflects the heightened risk associated with its debt load and uncertain path back to competitive profitability. Investors are essentially weighing the potential rewards of a successful restructuring against the very real risks of continued underperformance in a demanding global market.
Michelin stands as a formidable competitor to Goodyear, consistently outperforming it on key financial and operational metrics. While both are legacy giants in the tire industry, Michelin has cultivated a stronger premium brand image, which translates into superior pricing power and profitability. Goodyear's brand is strong, particularly in North America, but Michelin's global recognition and association with performance and quality, exemplified by its Michelin Guide, place it a tier above. This fundamental difference in market positioning and financial discipline makes Michelin a more stable and historically rewarding investment compared to Goodyear's higher-risk turnaround profile.
Winner: Michelin over Goodyear. In the Business & Moat analysis, Michelin emerges as the clear winner. Michelin's brand is arguably the strongest in the industry, backed by a Brand Finance value of $7.9 billion compared to Goodyear's $3.7 billion, allowing for significant pricing power. Switching costs are similarly high for both companies at the OEM level due to long design-in cycles, but Michelin's tech leadership in specialized tires (EV, performance) gives it an edge. In terms of scale, both are global players, but Michelin’s revenue is roughly 50% larger than Goodyear's, providing greater economies of scale. Michelin's distribution network is also a key strength, matching Goodyear's reach but with a focus on higher-value service. There are no significant differences in regulatory barriers. Michelin's combined strength in brand, scale, and technological leadership gives it a wider and deeper moat.
Winner: Michelin over Goodyear. A review of their financial statements reveals Michelin's superior health and profitability. Michelin consistently reports higher margins, with an operating margin typically in the 10-12% range, while Goodyear struggles to maintain margins in the 2-4% range. This shows Michelin is far more effective at converting sales into actual profit. On the balance sheet, Michelin maintains a healthier leverage profile, with a Net Debt/EBITDA ratio around 1.5x, a manageable level. In contrast, Goodyear's ratio is often above 5.0x, signaling significant financial risk. This high debt burden consumes cash flow that could otherwise be used for investment. Profitability metrics like Return on Equity (ROE) further confirm this, with Michelin's ROE often in the double digits while Goodyear's has been volatile and frequently in the low single digits. Michelin's stronger cash generation and more resilient balance sheet make it the decisive financial winner.
Winner: Michelin over Goodyear. Examining past performance over the last five years, Michelin has delivered more consistent and superior results. Michelin's revenue growth has been steadier, and it has done a much better job of protecting its margins during economic downturns. Goodyear's revenue has been more volatile, and its profitability has been severely impacted by cost inflation and restructuring charges. In terms of shareholder returns, Michelin's stock (ML.PA) has provided more stable and positive total shareholder returns (TSR) over a five-year period. In contrast, GT's stock has been highly volatile, experiencing significant drawdowns, including a >50% drop during periods of market stress, reflecting its higher operational and financial risk. Michelin wins on growth consistency, margin stability, shareholder returns, and lower risk.
Winner: Michelin over Goodyear. Looking forward, Michelin appears better positioned for future growth. A key driver is the transition to electric vehicles (EVs), which require specialized, higher-margin tires. Michelin is widely recognized as a leader in EV tire technology, having secured numerous contracts with leading EV manufacturers. Its heavy investment in R&D, particularly in sustainable materials and 'smart' tires with embedded sensors, places it at the forefront of industry innovation. Goodyear is also investing in these areas, but its high debt level may constrain the scale and pace of its R&D spending compared to Michelin. Michelin's strong financial base allows it to more aggressively pursue these long-term growth opportunities, giving it a clear edge.
Winner: Michelin over Goodyear. From a valuation perspective, Goodyear often trades at a significant discount to Michelin, which can be tempting for value investors. For example, Goodyear's forward P/E ratio might be in the 6-8x range, while Michelin's is closer to 10-12x. However, this discount is a direct reflection of Goodyear's higher risk profile, weaker balance sheet, and lower-quality earnings. Michelin's premium valuation is justified by its consistent profitability, market leadership, and stronger growth prospects. When considering risk, Michelin's higher price represents better value, as investors are paying for a much higher degree of safety, stability, and predictable performance. Goodyear is cheaper for a reason, and the risk-adjusted value proposition favors Michelin.
Winner: Michelin over Goodyear. The verdict is decisively in favor of Michelin due to its superior profitability, financial stability, and stronger strategic positioning. Michelin's key strengths are its premium brand equity, which supports operating margins 2-3 times higher than Goodyear's, and a healthy balance sheet with a Net Debt/EBITDA ratio around 1.5x, compared to Goodyear's precarious 5.0x+. Goodyear's primary weakness is this crushing debt load, which hampers its ability to invest and innovate at the same pace as its rival. While Goodyear presents a potential high-reward turnaround play if its restructuring succeeds, Michelin offers a much safer, high-quality investment with a proven track record of execution and shareholder returns. This makes Michelin the clear winner for most investors.
Bridgestone Corporation, a Japanese powerhouse, represents another top-tier competitor that consistently outperforms Goodyear. Alongside Michelin, Bridgestone is a leader in the global tire market, known for its operational excellence, technological innovation, and a very strong financial position. The company competes directly with Goodyear across all segments, from passenger cars to commercial trucks, but has established a reputation for quality and durability that often commands a premium. Goodyear's primary challenge when facing Bridgestone is its significant disadvantage in profitability and balance sheet strength, which limits its ability to compete on a level playing field in terms of capital investment and strategic flexibility.
Winner: Bridgestone over Goodyear. In the Business & Moat assessment, Bridgestone has a clear advantage. Bridgestone and its Firestone brand have global recognition on par with Goodyear, with a Brand Finance value of $7.1 billion, significantly higher than Goodyear's. Similar to other tire giants, switching costs are high for automotive OEM partners. However, Bridgestone's moat is deepest in its scale and operational efficiency; it is one of the world's largest tire companies by revenue, generating over $30 billion annually, which provides immense purchasing and manufacturing leverage. Its global distribution network, particularly its retail arm of over 2,200 stores in the U.S. alone (Firestone Complete Auto Care), provides a direct-to-consumer channel that is a significant competitive advantage. Regulatory barriers are a wash. Bridgestone wins due to its superior scale, brand strength, and vertically integrated retail network.
Winner: Bridgestone over Goodyear. The financial statement analysis overwhelmingly favors Bridgestone. The company is a model of financial prudence in the industry. Its operating margins consistently hover in the 11-13% range, dwarfing Goodyear's 2-4%. This vast difference in profitability is the most telling metric of their operational disparity. Furthermore, Bridgestone boasts an exceptionally strong balance sheet with a Net Debt/EBITDA ratio often below 1.0x, which is extremely low for a capital-intensive industry. This contrasts sharply with Goodyear's highly leveraged position (>5.0x). This financial fortress gives Bridgestone immense resilience and the capacity to invest heavily through business cycles. Profitability, as measured by ROE, is also consistently higher and more stable at Bridgestone. For financial health and performance, Bridgestone is in a different league.
Winner: Bridgestone over Goodyear. A look at their past performance over the last decade confirms Bridgestone's consistent superiority. Bridgestone has delivered steady, albeit modest, revenue growth, but more importantly, it has maintained its high profitability levels. Goodyear's performance has been erratic, marked by periods of losses and costly restructuring efforts. Over a five-year period, Bridgestone's total shareholder return has been more stable and generally positive, whereas Goodyear's stock (GT) has been a poor performer, experiencing deep cyclical downturns and long periods of stagnation. Risk metrics also favor Bridgestone; its stock exhibits lower volatility, and the company has maintained a strong credit rating, unlike Goodyear. Bridgestone is the winner for its track record of stable growth, high profitability, and better risk-adjusted returns.
Winner: Bridgestone over Goodyear. Regarding future growth, both companies are targeting the same opportunities in EV tires and sustainable solutions, but Bridgestone is positioned to execute more effectively. Its massive R&D budget, funded by strong and consistent cash flows, allows for more substantial long-term bets on new technologies. Bridgestone has been particularly aggressive in promoting its ENLITEN technology for lightweight and low-rolling-resistance tires, which are ideal for EVs. While Goodyear is also developing EV-specific tires, its financial constraints present a headwind. Bridgestone's ability to out-invest and out-innovate Goodyear, combined with its strong presence in key Asian markets—the fastest-growing region for auto sales—gives it a superior growth outlook.
Winner: Bridgestone over Goodyear. From a valuation standpoint, Goodyear's stock trades at a much lower multiple than Bridgestone's. GT's P/E ratio is often in the single digits, while Bridgestone's (5108.T) is typically in the low double digits (10-14x range). This valuation gap is entirely justified by the Grand Canyon-sized difference in quality and risk. Bridgestone offers investors a safe, stable, and highly profitable industry leader, which warrants a premium valuation. Goodyear is a speculative, high-debt turnaround story. An investor is paying for predictable earnings with Bridgestone versus potential, but highly uncertain, earnings improvement with Goodyear. On a risk-adjusted basis, Bridgestone offers better value for a long-term investor seeking quality.
Winner: Bridgestone over Goodyear. The verdict is unequivocally for Bridgestone, which excels in nearly every aspect of the business. Bridgestone's core strengths are its stellar financial health, exemplified by an industry-leading operating margin of ~12% and a rock-solid balance sheet with net debt below 1.0x EBITDA, and its operational efficiency. Goodyear's glaring weakness remains its crippling debt load and razor-thin margins. The primary risk for a Goodyear investor is the failure of its turnaround plan, leaving it unable to service its debt or compete effectively. Bridgestone, on the other hand, faces only standard cyclical market risks. For investors, the choice is between a financially fortified, highly profitable market leader and a struggling competitor, making Bridgestone the vastly superior option.
Continental AG is a unique competitor as it is a massive German automotive parts supplier, with tires being just one of its major divisions. This diversification provides both strengths and weaknesses in its comparison to Goodyear, a pure-play tire manufacturer. While Continental's tire business is highly profitable and technologically advanced, the performance of the company as a whole is also tied to the success of its other automotive segments, which have faced significant headwinds. Nonetheless, Continental's tire division alone is a direct and powerful competitor to Goodyear, often surpassing it in profitability and innovation, especially in the European market.
Winner: Continental over Goodyear. For Business & Moat, Continental has a slight edge. The Continental tire brand is a top-tier name, especially in Europe, with a brand value of $4.7 billion. Switching costs for its OEM business are high, similar to Goodyear's. Where Continental excels is its deep integration with automakers across multiple product lines (brakes, electronics, interiors), creating stickier relationships than a pure-play tire supplier might have. This synergy is a unique moat. In terms of scale, Continental's tire division revenue is comparable to Goodyear's total revenue, demonstrating significant scale economies. The key difference and Continental's advantage is its technological cross-pollination from its other advanced automotive divisions, which aids in developing 'smart' tires. Continental wins due to its deep OEM integration and technology synergies.
Winner: Continental over Goodyear. Financially, Continental's tire division is significantly healthier than Goodyear as a whole. Continental's tire segment consistently generates operating margins in the 10-14% range, showcasing strong pricing power and efficiency. In stark contrast, Goodyear's consolidated operating margins are much lower, around 2-4%. However, when looking at the entire Continental AG entity, its overall margins are diluted by its other, more challenged automotive divisions. The consolidated company's Net Debt/EBITDA ratio is around 2.0x-2.5x, which is healthier than Goodyear's 5.0x+ but not as pristine as Bridgestone's. Even with its non-tire business weighing it down, Continental's superior profitability in the core tire business and more manageable corporate leverage make it the financial winner.
Winner: Continental over Goodyear. Past performance presents a mixed but ultimately favorable picture for Continental. Over the last five years, Continental's tire business has shown resilient performance and stable margins. However, the overall stock (CON.DE) performance has been poor, dragged down by massive restructuring in its automotive and powertrain divisions as the industry shifts to EVs. Goodyear's stock (GT) has also performed poorly, but for reasons tied to its own debt and operational issues. The key differentiator is the underlying health of the core business. Continental's tire division has remained a pillar of strength, whereas Goodyear's entire operation has struggled. Despite poor stock performance for both, Continental's core tire business has proven more resilient and profitable, giving it the win in operational performance.
Winner: Continental over Goodyear. For future growth, Continental's position as a broad automotive technology supplier gives it a distinct advantage. The company is a key player in developing systems for autonomous driving, connectivity, and electrification. This allows it to bundle solutions for OEMs, including specialized tires designed to work with its own braking and stability control systems. This integrated approach is a powerful differentiator for winning future EV platform contracts. Goodyear is focused on developing EV tires, but it lacks the broader systems expertise of Continental. This makes Continental's growth story more deeply embedded in the future of the automobile, giving it a stronger long-term outlook.
Winner: Goodyear over Continental. In terms of valuation, both stocks have been beaten down and trade at what appear to be low multiples. Goodyear's forward P/E is often below 10x, and Continental's is in a similar range. However, the investment theses are different. An investment in Goodyear is a pure-play bet on a tire industry turnaround. An investment in Continental is a bet on a massive, complex restructuring of an entire automotive supplier in the face of the EV transition. Given the immense uncertainty and capital required for Continental's transformation, its risk profile is arguably more complex and opaque than Goodyear's. Goodyear's turnaround, while difficult, is more focused. For an investor specifically seeking value in the auto components space, Goodyear's simpler, albeit still risky, story may present a better value proposition at its depressed price.
Winner: Continental over Goodyear. The final verdict favors Continental, primarily due to the superior quality and profitability of its core tire business. Continental's key strengths are its technological leadership, synergistic relationships with OEMs across multiple product lines, and the high profitability of its tire division, which boasts margins 3-4 times that of Goodyear. Its main weakness is the performance drag and restructuring risk from its non-tire automotive segments. Goodyear's fundamental weakness is its high debt and low margins across its entire business. While Goodyear may appear cheaper and offers a simpler turnaround story, Continental's foundation in the tire segment is vastly stronger, providing a more reliable engine of profit and innovation to fund its future growth. This underlying quality makes it the superior long-term competitor.
Pirelli & C. S.p.A., the Italian tire manufacturer, competes with Goodyear not on scale, but on strategy. Pirelli has deliberately focused on the high-value consumer tire market, specifically the 'Prestige' (supercars) and 'Premium' (luxury vehicles) segments. This niche focus is its greatest strength, allowing it to achieve industry-leading profitability. In contrast, Goodyear operates across all segments, from mass-market to high-performance, which exposes it to more intense competition and margin pressure. The comparison between the two highlights the strategic trade-off between Goodyear's broad-market approach and Pirelli's profitable high-end specialization.
Winner: Pirelli over Goodyear. In a Business & Moat comparison, Pirelli excels. Pirelli's moat is built on an incredibly strong brand, synonymous with performance, luxury, and Formula 1 racing. Its brand is its primary asset, allowing it to command significant price premiums. Switching costs for its OEM partners like Ferrari, Lamborghini, and Porsche are extremely high, as Pirelli tires are engineered as an integral part of the vehicle's performance envelope. While much smaller than Goodyear in revenue (~$7 billion vs. Goodyear's ~$20 billion), its focused scale in the premium market is a strength, not a weakness. Goodyear's brand is well-known but does not carry the same prestige or pricing power. Pirelli wins decisively on the strength of its premium brand and its entrenched position with high-end automakers.
Winner: Pirelli over Goodyear. The financial statements clearly reflect the success of Pirelli's strategy. Pirelli consistently reports the highest operating margins in the industry, often in the 14-16% range. This is vastly superior to Goodyear's 2-4% margins and demonstrates the immense value of its premium focus. Pirelli's balance sheet is also managed more conservatively, with a Net Debt/EBITDA ratio typically around 2.0x, a manageable level that is significantly healthier than Goodyear's 5.0x+. Profitability metrics like ROIC (Return on Invested Capital) are also much stronger at Pirelli, indicating it generates more profit from the capital it employs. Pirelli's focused business model translates directly into superior financial results, making it the clear winner.
Winner: Pirelli over Goodyear. Pirelli's past performance has been more consistent, especially in terms of profitability. While its revenue growth is tied to the cyclical luxury car market, it has successfully defended its high margins even during downturns. Goodyear's performance has been much more volatile, with profits fluctuating wildly based on raw material costs, demand in mass-market segments, and restructuring expenses. Over the last five years, Pirelli's stock (PIRC.MI) has had its ups and downs but has generally reflected the health of its underlying business. GT's stock has been a chronic underperformer, weighed down by its debt and operational issues. Pirelli wins for its track record of maintaining best-in-class profitability and providing a more stable performance profile.
Winner: Pirelli over Goodyear. Looking at future growth, Pirelli is exceptionally well-positioned for key industry trends. The shift towards EVs, especially in the premium and performance segments, plays directly to Pirelli's strengths. These vehicles require specialized, high-margin tires, and Pirelli is a chosen partner for many high-performance EV brands like Porsche and Lucid. Its focus on larger rim sizes (18 inches and above) is another structural tailwind, as this is the fastest-growing and most profitable part of the market. Goodyear is also targeting these segments, but it must do so while also managing its much larger, lower-margin businesses. Pirelli's focused strategy allows it to dedicate all its resources to the most profitable growth areas, giving it a superior outlook.
Winner: Goodyear over Pirelli. In a pure valuation comparison, Goodyear often appears significantly cheaper. Its P/E and EV/EBITDA multiples are typically lower than Pirelli's. Pirelli's stock commands a premium for its high margins and strong brand. However, Pirelli's growth is tied to the niche luxury auto market, which could be more vulnerable in a deep global recession than the broader replacement tire market that forms a large part of Goodyear's business. For an investor looking for deep value and willing to bet on a cyclical recovery in the mass market, Goodyear's depressed valuation could offer more upside potential, albeit with substantially higher risk. Pirelli is higher quality, but Goodyear is quantitatively cheaper, making it the winner on this single metric.
Winner: Pirelli over Goodyear. The final verdict is strongly in favor of Pirelli, whose focused, high-end strategy has created a more profitable and resilient business. Pirelli's key strength is its unparalleled brand power in the premium segment, which enables industry-leading operating margins of ~15%. Its notable weakness is its smaller scale and reliance on the cyclical luxury market. Goodyear's main weakness is its commodity-like exposure in large parts of its business, leading to thin margins and high debt. The primary risk for Goodyear is a failure to restructure, while Pirelli's risk is a severe downturn in luxury goods spending. Pirelli's business model has proven to be a more effective way to create shareholder value in the competitive tire industry.
Sumitomo Rubber Industries, a major Japanese tire manufacturer, competes with Goodyear as a solid, mid-tier global player. It owns well-known brands like Falken and also manufactures Dunlop tires in many regions. Sumitomo is a more direct competitor to Goodyear's mass-market offerings than a premium player like Pirelli. While it lacks the global brand recognition of Goodyear, it is known for producing quality tires at competitive price points and has a strong presence in Asia. The comparison highlights the pressure Goodyear faces from competent, financially sound, and often lower-cost international rivals.
Winner: Sumitomo over Goodyear. In the Business & Moat analysis, Sumitomo presents a competitive profile. Its brands like Falken and Dunlop are respected, particularly in the aftermarket and enthusiast communities, though they lack the iconic status of Goodyear. Sumitomo's scale is smaller than Goodyear's, with revenue roughly half the size, which can be a disadvantage in purchasing raw materials. However, Sumitomo benefits from being part of the wider Sumitomo Group, a massive Japanese keiretsu, which can provide financial stability and strategic advantages. Its moat is derived from its manufacturing efficiency and strong distribution in Asia. While Goodyear has a stronger global brand, Sumitomo's more stable financial footing gives it a more resilient business model, making it the narrow winner.
Winner: Sumitomo over Goodyear. A review of their financial statements shows Sumitomo to be in a healthier position. Sumitomo's operating margins are typically in the 6-8% range. While not as high as the premium players, this is consistently double or triple what Goodyear has managed to achieve in recent years (2-4%). This indicates a more efficient cost structure or better pricing discipline in its chosen segments. On the balance sheet, Sumitomo maintains a conservative leverage profile with a Net Debt/EBITDA ratio around 1.5x-2.0x. This is a stark contrast to Goodyear's high-risk 5.0x+ ratio. Sumitomo's financial prudence provides stability and flexibility that Goodyear sorely lacks, making it the clear winner on financial health.
Winner: Sumitomo over Goodyear. In terms of past performance, Sumitomo has delivered more stable and predictable results. Its earnings have not been spectacular, but they have been consistent. Goodyear's history is one of booms and busts, with significant write-downs and restructuring charges clouding its performance. Over the last five years, Sumitomo's stock (5110.T) has provided modest but relatively stable returns for investors, reflective of its steady business. GT's stock, on the other hand, has been highly volatile and has destroyed significant shareholder value over the same period. For an investor prioritizing capital preservation and steady performance, Sumitomo has been the far better choice.
Winner: Goodyear over Sumitomo. For future growth, Goodyear may have a slight edge due to its larger scale and stronger presence in the lucrative North American market, particularly with EV manufacturers. Goodyear has been aggressive in announcing OEM fitments on new EV models from Tesla, Ford, and GM. Sumitomo is also pursuing the EV market, but its wins have been more concentrated in Asia. Goodyear's iconic brand and deep relationships with Western automakers could give it a faster path to capturing share in the high-value EV replacement market outside of Asia. Therefore, despite its financial weakness, Goodyear's strategic positioning in key growth markets gives it a narrow advantage in future growth potential.
Winner: Goodyear over Sumitomo. From a valuation perspective, both companies often trade at low multiples, characteristic of the tire industry. Both have P/E ratios that can dip into the high single digits. However, Goodyear's stock is often priced at a deeper discount to its book value and sales, reflecting its higher risk. For a deep value or turnaround-focused investor, Goodyear's severely depressed valuation presents a higher potential reward if its restructuring plan succeeds. Sumitomo is a safer, more stable company, but its stock offers less dramatic upside potential. Goodyear wins on the basis of being the cheaper, higher-beta play on an industry recovery.
Winner: Sumitomo over Goodyear. The final verdict favors Sumitomo due to its vastly superior financial stability and consistent profitability. Sumitomo's key strength is its prudent financial management, evidenced by a healthy Net Debt/EBITDA ratio below 2.0x and operating margins that are consistently 2x-3x higher than Goodyear's. Its primary weakness is a relative lack of brand power compared to the top-tier global players. Goodyear's defining weakness is its over-leveraged balance sheet, which creates significant financial risk and constrains its strategic options. While Goodyear may have slightly better growth positioning in the North American EV market, this potential is overshadowed by the immense risk posed by its financial structure. Sumitomo is a better-run, more resilient company and the more sensible investment.
Hankook Tire & Technology, based in South Korea, has emerged as a major global competitor and a significant threat to established players like Goodyear. Once considered a value-oriented brand, Hankook has successfully moved upmarket, becoming a key supplier to many global automakers and a respected name in the performance and EV tire segments. It combines technological prowess with highly efficient manufacturing, resulting in a formidable combination of quality and cost-competitiveness. Hankook's rapid ascent and strong financial performance provide a stark contrast to Goodyear's recent struggles.
Winner: Hankook over Goodyear. In the Business & Moat analysis, Hankook has built an impressive position. The Hankook brand has gained significant traction and is now an original equipment supplier for premium brands like Porsche and BMW, a testament to its quality (~50% of revenue from OE). This closes the brand gap with Goodyear significantly. Where Hankook truly excels is its state-of-the-art manufacturing facilities, which are some of the most automated and efficient in the industry, providing a significant cost advantage. While its global scale is still smaller than Goodyear's, its focused investments in modern capacity have been more effective. Its moat is built on a potent combination of rapidly improving brand equity and a superior cost structure. Hankook wins this category.
Winner: Hankook over Goodyear. The financial statements tell a story of two companies on different trajectories. Hankook has become a profitability leader, with operating margins frequently in the 12-15% range, sometimes even surpassing premium players like Michelin. This is a world away from Goodyear's 2-4% margins. This profitability is built on a foundation of a very strong balance sheet. Hankook operates with very little debt, with a Net Debt/EBITDA ratio often below 1.0x. This financial strength is similar to Bridgestone's and gives Hankook enormous flexibility to invest in R&D and capacity. Goodyear is hamstrung by its debt, while Hankook is empowered by its balance sheet. On every key financial metric—margins, leverage, and profitability (ROE)—Hankook is the decisive winner.
Winner: Hankook over Goodyear. Examining past performance, Hankook's ascent over the last decade has been remarkable. It has consistently grown its market share and expanded its global footprint, particularly in Europe and North America. Its revenue and earnings growth have significantly outpaced Goodyear's. This strong operational performance has translated into better shareholder returns. While its stock (161390.KS) is subject to the cycles of the auto industry, its trajectory has been positive over the long term. Goodyear's performance has been defined by stagnation and restructuring. Hankook is the clear winner, having executed a successful growth strategy while Goodyear has been playing defense.
Winner: Hankook over Goodyear. In terms of future growth, Hankook is exceptionally well-positioned. It was an early mover in the electric vehicle space and has developed a dedicated line of 'iON' EV tires that have been well-received. Its strong relationships with global automakers, including EV leaders, ensure it will be a key player as the market transitions. Its financial capacity to build new, highly efficient plants in strategic locations (like the U.S. and Hungary) allows it to quickly respond to growing demand. Goodyear is also targeting EVs, but Hankook's combination of advanced technology, cost efficiency, and financial firepower gives it a superior growth outlook.
Winner: Hankook over Goodyear. When it comes to valuation, Hankook often trades at a higher P/E multiple than Goodyear, but it is frequently cheaper than European peers like Michelin and Pirelli. A typical P/E for Hankook might be in the 8-10x range. Given its superior growth, industry-leading profitability, and fortress-like balance sheet, this valuation appears very reasonable. Goodyear is cheaper on paper, but the discount is more than justified by its high risk and poor performance. Hankook offers a compelling combination of growth and quality at a fair price, making it a better value proposition than Goodyear on a risk-adjusted basis.
Winner: Hankook over Goodyear. The final verdict is a clear win for Hankook, a rising star that has surpassed the legacy player in critical areas. Hankook's primary strengths are its outstanding profitability, with operating margins 4-5 times higher than Goodyear's, and its pristine balance sheet with a Net Debt/EBITDA ratio under 1.0x. This financial excellence is a result of its highly efficient, modern manufacturing base. Goodyear's main weakness is its inefficient operations and crushing debt load. The risk for Goodyear is that it cannot restructure fast enough to compete, while the risk for Hankook is maintaining its growth trajectory as it becomes a larger, more established player. Hankook represents the new model of success in the tire industry, and Goodyear is struggling to keep pace.
Based on industry classification and performance score:
Goodyear's business is built on its iconic brand and global scale, which create a solid competitive moat, particularly in the profitable replacement tire market. The company benefits from sticky, long-term contracts with automakers and a vast distribution network that is difficult to replicate. However, it operates in a highly competitive, capital-intensive, and cyclical industry, facing constant price pressure from both premium and low-cost rivals. The investor takeaway is mixed: Goodyear has durable advantages but operates in a challenging environment that limits profitability and growth.
While Goodyear is developing EV-specific tires to meet new performance demands, this is a necessary adaptation rather than a distinct competitive advantage, as all major rivals are pursuing similar innovations.
The shift to electric vehicles requires tires with specific attributes, such as lower rolling resistance to maximize range, higher load capacity to support heavy batteries, and designs that reduce road noise. Goodyear has actively developed and marketed EV-specific tire lines like its ElectricDrive series to meet these needs. However, this is a defensive and necessary evolution, not a moat-widening advantage. Every major competitor, including Michelin and Continental, is heavily invested in R&D for EV tires, making the technology table stakes for remaining competitive. Because tires are already a fundamental component of any vehicle, being 'EV-ready' doesn't unlock a new market for Goodyear in the way it might for a supplier of internal combustion engine parts. It's an adaptation to retain existing market share, not a durable edge over peers.
As a top-tier global brand with a century-long history, Goodyear's reputation for quality and reliability is a core asset that supports its premium pricing and preferred status with both consumers and automakers.
Tires are a critical safety component, and a supplier's reputation for quality and reliability is paramount. A major recall can be financially devastating and cause irreparable brand damage. Goodyear, along with its top-tier peers, has built its brand over decades on the promise of safety and performance. This reputation allows it to command premium prices in the replacement market and qualifies it as a trusted partner for global automakers who cannot risk quality failures in their supply chain. While specific defect metrics like PPM are not publicly disclosed, the company's long-term success and status as a primary supplier to demanding OEMs imply a robust quality control system. This reputation is a powerful intangible asset and a source of competitive advantage.
Goodyear's massive global manufacturing footprint is a key competitive advantage, allowing it to serve automakers worldwide and achieve significant economies of scale.
Goodyear is one of the top three tire manufacturers globally, with a vast network of production facilities across the Americas, EMEA, and Asia-Pacific. In fiscal year 2024, its revenue was geographically diverse, with ~$11 billion from the Americas, ~$5.4 billion from EMEA, and ~$2.4 billion from Asia-Pacific. This global scale is a critical moat, especially in the OEM business. Automakers with global platforms require suppliers who can deliver identical, high-quality components to their assembly plants around the world on a just-in-time (JIT) basis. Goodyear's long-established footprint allows it to meet this need, creating a significant barrier to entry for smaller, regional competitors. This scale also provides cost advantages through raw material purchasing power and manufacturing efficiencies, supporting its overall competitive position.
As a specialized tire supplier, Goodyear's content per vehicle is inherently limited to tires, preventing it from capturing a larger share of OEM spending compared to diversified systems suppliers.
Goodyear's business model is focused almost exclusively on tires. For a standard passenger car, this means its content is limited to four or five units (including a spare). Unlike broadline suppliers who can bundle multiple systems like seating, electronics, and powertrain components, Goodyear cannot significantly increase its content per vehicle beyond selling higher-value tires (e.g., larger sizes, advanced technology). This structural limitation puts a cap on its share of an automaker's total component budget for any given vehicle platform. While the company can boost revenue through price and mix, its inability to add more types of components is a strategic disadvantage compared to more diversified auto suppliers. Therefore, its advantage in this specific factor is weak.
In its OEM business, Goodyear benefits from high customer stickiness due to multi-year platform awards, which lock in revenue and create significant switching costs for automakers.
A significant portion of Goodyear's revenue comes from long-term contracts with automakers to supply tires for specific vehicle models, known as platform awards. These awards typically last for the entire production life of a vehicle, often five to seven years. Once an automaker has engineered a vehicle around a specific tire, switching suppliers mid-cycle is logistically complex, costly, and requires extensive re-testing and validation. This creates very high customer stickiness and predictable revenue streams from the OEM segment. While its larger replacement tire business has lower stickiness, the stability provided by these OEM platform awards is a clear strength and a key component of its business model's resilience. These long-standing relationships with the world's largest automakers are a durable competitive advantage.
Goodyear's financial statements reveal a company under significant stress. Despite a large revenue base of $18.31B over the last year, the company is unprofitable, posting a staggering trailing-twelve-month net loss of $-1.73B. Free cash flow is consistently negative, with the company burning through cash in its last several reporting periods, and total debt has climbed to over $9.1B. This combination of mounting losses, negative cash flow, and high debt creates a risky financial profile. For investors, the takeaway is decidedly negative, pointing to a deteriorating financial foundation that lacks stability.
Goodyear's balance sheet is highly leveraged and shows clear signs of distress, with debt levels far exceeding cash generation and operating income that is insufficient to cover interest payments.
The balance sheet is a significant area of concern for Goodyear. As of Q3 2025, total debt stood at a substantial $9.17B against a cash balance of only $810M. The company's Net Debt/EBITDA ratio, a key measure of leverage, is 5.44, which is substantially higher than a typical auto component supplier benchmark of around 2.0x-3.0x, indicating excessive leverage. More alarmingly, the company's ability to service this debt from its operations is questionable. In the most recent quarter, operating income (EBIT) was just $78M, which was not enough to cover the $114M in interest expense. This negative interest coverage is a major red flag for solvency. While the current ratio of 1.27 offers a thin liquidity cushion, the overall picture is one of a fragile balance sheet that lacks the resilience to withstand industry downturns or unexpected shocks.
While specific customer data is not provided, Goodyear's global brand and significant presence in both original equipment and replacement markets suggest a well-diversified revenue base, which is a key relative strength.
Specific metrics on customer concentration, such as revenue percentage from its top customers, are not available in the provided data. However, based on Goodyear's established position as one of the world's largest tire manufacturers, it is reasonable to infer a low concentration risk. The company serves a wide array of global automotive OEMs and also has a very large business in the consumer replacement tire market, which is less cyclical than new car sales. This diversification across geographies, vehicle manufacturers, and end-markets (new vs. replacement) is a structural advantage that helps insulate the company from problems at any single customer or in any single region. Despite its poor financial performance, this diversified business model is a positive attribute.
Goodyear's profit margins are extremely thin and have deteriorated significantly, indicating a severe struggle to manage costs and pass on price increases to customers.
The company's profitability is under severe pressure, highlighting an ineffective margin structure. In its latest quarter (Q3 2025), the operating margin was a razor-thin 1.68%. This is substantially weaker than the typical auto component industry average, which is closer to 5%-8%. The dramatic drop from a gross margin of 18.17% to this low operating margin suggests that high selling, general, and administrative (SG&A) costs are wiping out nearly all profits from production. The negative revenue growth (-3.71% in Q3) combined with these collapsing margins indicates that Goodyear currently lacks the pricing power to offset inflation in raw materials and labor. This inability to protect its profitability is a core weakness of its current financial profile.
The company maintains significant capital expenditures, but with consistently negative free cash flow and poor profitability, these investments are currently destroying shareholder value rather than creating it.
Goodyear is investing heavily in its business, with capital expenditures (CapEx) of $1.19B in its last fiscal year, representing about 6.3% of sales. This spending level is broadly in line with the auto component industry average of 5%-7%. However, the productivity of this capital is very poor. The company's return on capital employed (ROCE) has fallen to a meager 3.2%, which is extremely low for an industrial company and is almost certainly below its cost of capital. Crucially, these investments are being funded by taking on more debt, as the company has failed to generate positive free cash flow. With FCF consistently negative (e.g., $-181M in Q3 2025), the high CapEx is contributing to the company's cash burn and increasing financial risk instead of generating profitable growth.
The company consistently fails to convert its operations into cash, with negative free cash flow and weak operating cash flow highlighting a fundamental breakdown in cash conversion discipline.
Goodyear's ability to turn business activity into cash is critically weak. The company has posted negative free cash flow (FCF) for its last full year ($-490M) and both recent quarters, including $-181M in Q3 2025. This means the company is burning through cash after funding its operations and investments. The resulting FCF margin of -3.9% is a stark contrast to the healthy positive 2%-4% margin expected from a stable industrial company. This poor performance is partly due to inefficient working capital management. For instance, in Q3, cash flow was negatively impacted by a $79M build-up in inventory and a $107M increase in accounts receivable. This consistent cash burn signifies a major operational problem and is a significant risk for investors.
Goodyear's past performance has been highly volatile and challenging. While the company maintains significant revenue, peaking at over $20 billion in 2022, this has not translated into consistent profits or cash flow. The company reported net losses in two of the last five years, and free cash flow has been frequently negative, reaching -$540 million in 2022. The balance sheet is strained by high debt levels, consistently above $8 billion. Compared to peers who prioritize margin stability and cash generation, Goodyear's record shows significant weakness. The investor takeaway on its past performance is negative, highlighting deep operational and financial inconsistencies.
While revenue saw a strong rebound after 2020, it has declined in the last two fiscal years, indicating a lack of sustained growth momentum.
Goodyear's revenue trend has been inconsistent. The company saw a powerful rebound post-pandemic, with revenue growing 41.85% in FY2021 and 19.04% in FY2022, partly helped by an acquisition. However, that momentum proved temporary, as revenue subsequently fell by 3.55% in FY2023 and an estimated 5.92% in FY2024. This reversal suggests the company is struggling to achieve durable growth above the underlying automotive market. For a core auto supplier, consistent, steady growth is a key indicator of gaining market share, and Goodyear's record does not demonstrate this.
The company's total shareholder return has been poor and highly volatile, reflecting the underlying business's inconsistent financial performance and significant dilution.
While specific multi-year TSR figures are not fully detailed, the available data points to a history of poor returns. The company's market capitalization has been extremely volatile, swinging from $2.5 billion in FY2020 up to nearly $6.0 billion in FY2021, only to fall back to $2.6 billion recently. The total shareholder return has been negatively impacted by substantial dilution, with the share count rising by nearly 23% over five years. A stock beta of 1.19 confirms higher-than-market volatility. This combination of fundamental weakness and high volatility has resulted in a poor experience for long-term shareholders.
While specific metrics on launches and quality are not provided, the persistent weak margins and significant restructuring charges suggest ongoing operational challenges.
Direct data on launch timelines or warranty costs is unavailable. However, indirect evidence points to execution issues. The company has recorded substantial merger and restructuring charges in multiple years, such as -$502 million in FY2023 and -$253 million in FY2021, which often signal difficulties in operations or integrations. Furthermore, the chronically low and volatile operating margin, averaging just 2.99% over the last five years, indicates struggles with cost control and efficiency—hallmarks of a company facing execution headwinds. Without clear evidence of operational excellence, the poor financial results suggest a history of challenges.
Goodyear has a poor track record of cash generation, with frequently negative free cash flow and a suspended dividend, indicating weak returns to shareholders.
The company's ability to generate cash for shareholders has been historically poor. Free cash flow (FCF), the cash left after funding operations and capital expenditures, was negative in three of the last five years, including -$540 million in FY2022 and -$490 million in FY2024. The dividend was suspended after FY2020 to preserve cash, and there have been no share buybacks. Instead, the company has diluted existing shareholders, with shares outstanding increasing from 234 million in FY2020 to 287 million in FY2024. This combination of cash burn and dilution is the opposite of what investors seek in shareholder returns.
Goodyear's margins have been highly volatile and have compressed significantly from their 2021 peak, demonstrating a lack of resilience to cyclical pressures and cost inflation.
Margin stability is a clear historical weakness for Goodyear. The company's gross margin has fluctuated wildly, from 16.96% in FY2020 to a high of 22.29% in FY2021, before falling back to 17.47% in FY2023. This instability suggests weak pricing power and high sensitivity to raw material costs and production volumes. The operating margin is even more erratic, swinging from -2.0% to 6.3% over the last five years. For an industrial manufacturer, this level of volatility is a significant risk and points to an inability to consistently manage costs or pass through price increases, unlike more resilient competitors.
Goodyear's future growth outlook is modest, driven primarily by the steady demand from the global replacement tire market and a shift towards more profitable, larger tires for SUVs and electric vehicles. The primary tailwind is the growing number of vehicles on the road, which ensures a consistent need for replacements. However, significant headwinds include intense price competition from both premium rivals like Michelin and numerous low-cost manufacturers, alongside volatility in raw material costs. Compared to its peers, Goodyear's growth is likely to track the overall market, without a clear catalyst for outperformance. The investor takeaway is mixed, pointing to stable but low-growth potential in a challenging, mature industry.
While Goodyear is developing and selling EV-specific tires, it has not demonstrated a clear competitive lead or a superior product pipeline that guarantees it will win disproportionate market share in the EV transition.
This factor, reframed for a tire company, assesses the strength of its EV tire pipeline. Goodyear has successfully developed EV-ready tires (e.g., ElectricDrive series) and secured fitments on numerous EV models. However, this is a defensive necessity, not a unique growth driver. All major competitors, like Michelin and Continental, are aggressively pursuing the same strategy with comparable technology. Goodyear has not disclosed a specific backlog of EV awards or financial metrics that would indicate a superior win rate or technological advantage over its peers. Because participation in the EV market is merely 'table stakes' for survival rather than a demonstrated engine for outsized growth, this factor fails.
Increasingly stringent global safety and environmental regulations for tires create a favorable environment for premium manufacturers like Goodyear, driving demand for higher-performance products.
Tires are a critical safety component, and regulators worldwide are tightening standards. For instance, tire labeling laws in Europe and other regions mandate the disclosure of performance on metrics like wet-braking distance, exterior noise, and fuel efficiency (rolling resistance). These regulations make performance attributes more transparent to consumers, encouraging them to choose safer and more efficient tires over basic, low-cost options. This regulatory push supports demand for Goodyear's higher-value products and reinforces the strength of its trusted brand, creating a durable, long-term tailwind for the business. This secular trend justifies a pass.
The push for vehicle efficiency, especially in EVs, creates a strong tailwind for Goodyear's advanced tires, which offer lower rolling resistance and can command higher prices.
The demand for lighter and more efficient components is a significant growth driver for Goodyear. Low rolling resistance is a critical feature for EV tires, as it directly translates to longer battery range—a key consumer concern. These technologically advanced tires are more complex to manufacture and carry a higher price tag and better margins, directly increasing the content per vehicle (CPV). As the vehicle mix shifts towards EVs, Goodyear is well-positioned to benefit from this trend of premiumization. This provides a clear path to revenue growth and potential margin expansion, even without significant volume increases, warranting a pass.
Goodyear's focus on the profitable replacement tire market, which represents the vast majority of its volume, combined with its retail service network, creates a stable foundation for future earnings.
The aftermarket is the core of Goodyear's business and its primary profit driver. In fiscal year 2024, replacement tires accounted for 120.7 million units out of a total of 166.6 million, representing over 72% of the company's tire volume. This segment is less cyclical than the new car market, providing a resilient demand base. Furthermore, the company's retail and service business generated ~$905 million in revenue, creating a direct sales channel to consumers and capturing additional high-margin service revenue. This strong position in the stable, needs-based aftermarket provides a solid base for consistent cash flow generation, justifying a pass.
As a mature global player with a well-established footprint, Goodyear has limited runway for substantial growth through new geographic or OEM expansion, with its current strategy focused on optimizing its existing portfolio.
Goodyear is already highly diversified, with 2024 revenues of ~$11.0 billion from the Americas, ~$5.4 billion from EMEA, and ~$2.4 billion from Asia-Pacific. This global scale is a current strength but also means the 'low-hanging fruit' for geographic expansion has been picked. The company's 'Goodyear Forward' plan involves divesting certain businesses and optimizing its current footprint, not aggressive expansion into new markets. While it serves all major global OEMs, the mature nature of the auto industry means adding entirely new OEM customers at scale is unlikely. Since the opportunity for future growth from this specific lever is limited, the factor fails.
As of December 26, 2025, with The Goodyear Tire & Rubber Co. (GT) trading at a price of $12.50, the stock appears to be a potential value trap, meaning it looks cheap for dangerous reasons. While it trades in the lower third of its 52-week range of $10.00 - $18.00, its valuation is clouded by significant financial distress. Key metrics that matter here are largely negative: the company has a negative Price/Earnings (P/E) ratio due to a trailing-twelve-month net loss of $-1.73B and a negative Free Cash Flow (FCF) yield, as it burned $-181M in the last quarter. Its Enterprise Value to EBITDA (EV/EBITDA) multiple is low compared to peers, but this discount reflects severe underlying issues, including razor-thin margins and a heavy debt load with a Net Debt/EBITDA ratio over 5.0x. For investors, the takeaway is negative; the stock's apparent cheapness is a direct result of operational struggles and a high-risk balance sheet, not a market mispricing.
As a pure-play tire manufacturer, Goodyear's business is not a conglomerate of distinct divisions, and therefore a Sum-of-the-Parts analysis is not applicable and offers no potential for hidden value.
A Sum-of-the-Parts (SoP) analysis is used to value companies with multiple, distinct business segments that might be valued differently by the market (e.g., an industrial company that also owns a high-growth software division). This does not apply to Goodyear. As described in the BusinessAndMoat analysis, Goodyear is a pure-play tire company. Its entire operation is focused on the design, manufacturing, and sale of tires. There are no disparate, hidden assets or high-value segments being obscured by a consolidated valuation. The company's value is tied directly to the performance of its single business line. Consequently, there is no potential for a valuation uplift from an SoP analysis.
Goodyear's Return on Invested Capital is extremely low and well below its cost of capital, indicating that the company is currently destroying shareholder value with its investments.
A company creates value only when its Return on Invested Capital (ROIC) is greater than its Weighted Average Cost of Capital (WACC). Goodyear fails this test decisively. The prior financial analysis noted a Return on Capital Employed (a proxy for ROIC) of just 3.2%. For a company with Goodyear's risk profile and high leverage, its WACC is likely in the 9-11% range. This results in a large, negative ROIC-WACC spread, which means the company is destroying value. It is investing billions in capital expenditures, but the returns generated from that capital are insufficient to cover the cost of funding it. This is a hallmark of a poorly performing business and does not support a value thesis.
While Goodyear trades at a lower EV/EBITDA multiple than its peers, this discount is a fair reflection of its significantly lower margins, negative growth, and higher financial risk, rather than a sign of undervaluation.
Goodyear's forward EV/EBITDA multiple of approximately 5.5x is noticeably below the peer median of ~7.5x. However, this discount is not an indicator of mispricing; it is justified by severe fundamental weaknesses. The company's operating margin of 1.68% is dramatically lower than the 10%+ margins of top-tier competitors. Its revenue growth was negative (-3.71%) in the most recent quarter, while many peers are growing. Most critically, its balance sheet is burdened by high leverage (Net Debt/EBITDA > 5.0x). Enterprise Value (EV) includes debt, so a company with high debt and low EBITDA will naturally have a compressed multiple. In this case, the market is correctly pricing in the high risk associated with Goodyear's debt and its inferior profitability. The stock is cheap for a reason.
The Price/Earnings ratio is not a meaningful metric for Goodyear today due to significant net losses, and even forward estimates are unreliable given the company's weak margins and high financial risk.
The P/E ratio is one of the most common valuation tools, but it is useless when earnings are negative. Goodyear posted a trailing-twelve-month net loss of $-1.73B, making its TTM P/E ratio meaningless. While analysts may forecast a return to profitability, giving it a positive forward P/E, these estimates are speculative. They depend on the successful execution of a major restructuring plan. More importantly, the company's quality of earnings is poor, as it has been unable to convert accounting profits (when it has them) into cash. Its EBITDA margin is a fraction of its peers', and with negative EPS growth in recent years, there is no stable earnings base to normalize for a business cycle. Comparing a speculative forward P/E for Goodyear to the stable, cash-backed P/E of a high-quality competitor would be a misleading exercise.
Goodyear's free cash flow yield is negative due to its persistent cash burn, placing it at a significant disadvantage to healthy peers who generate positive cash returns for shareholders.
A company's ability to generate free cash flow (FCF) is a primary indicator of its financial health and its capacity to repay debt, invest, and return capital to shareholders. Goodyear is failing on this critical metric. The company reported negative FCF of $-490M for the last fiscal year and $-181M in its most recent quarter, resulting in a negative FCF yield. This contrasts sharply with best-in-class peers in the automotive industry, which typically generate stable, positive FCF yields. The cash burn is exacerbated by a heavy debt load, with net debt exceeding 5.0x EBITDA, meaning a substantial portion of any future cash generated will be consumed by interest payments. This complete lack of FCF generation and yield indicates the business is fundamentally unprofitable on a cash basis and is not a compelling value.
The primary risk for Goodyear is its significant financial leverage. The company carries a substantial amount of debt, with a net leverage ratio (a measure of debt compared to earnings) that has often been above the industry average. This high debt burden becomes more dangerous in a high-interest-rate environment, as it increases borrowing costs and diverts cash flow away from crucial investments in research, development, and modernization. In the event of an economic downturn, which typically reduces car sales and miles driven, Goodyear's revenue could fall, making it even more difficult to service its debt and maintain profitability. This combination of cyclical industry exposure and a weak balance sheet creates a major vulnerability for investors.
The tire industry is mature and intensely competitive, which severely limits Goodyear's ability to raise prices. The company competes not only with established giants like Michelin and Bridgestone but also with a growing number of aggressive, lower-cost manufacturers from Asia. This competitive pressure is most acute in the highly profitable replacement tire market. If Goodyear cannot differentiate its products through technology and brand strength, it risks losing market share or being forced to cut prices, which would further squeeze its already thin profit margins. This threat is constant and requires continuous investment just to maintain its current position.
Looking forward, the transition to electric vehicles presents both an opportunity and a significant risk. EV tires need to be different—they must handle the instant torque and heavier weight of EVs while being quieter and more durable. This requires significant R&D spending to develop new technologies and products. If Goodyear's EV tires fail to outperform competitors' or if they become a commoditized product without a price premium, the company could miss out on a key growth driver for the next decade. Furthermore, Goodyear is in the middle of a major restructuring plan called "Goodyear Forward," which aims to cut costs and sell non-core assets. Executing such a large-scale transformation is complex and carries its own risks; any delays or failures to achieve the targeted savings could disappoint investors and further strain the company's financial health.
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