When John J. Nevin became president of Firestone Tire & Rubber Co. late in 1979, the company was in desperate trouble, an industrial dinosaur trapped by obsolete plants, a bloated payroll and a mountain of debt.
To save the company, Nevin attacked it with a cleaver. He closed seven of its 17 plants in the United States and Canada, trimmed the number of employes by about 25 percent, reduced the product line, abandoned some foreign operations and sold off a money-losing subsidiary to raise cash.
The result was a dramatic turnaround. For the nine months that ended July 31, Firestone reported net income of $121 million, against a loss of $98 million in the same period a year earlier. Debt, which at today's interest rates was crippling the company, has been cut in half, from $1.1 billion in April 1980 to about $550 million today. The remaining plants are operating at nearly 90 percent capacity, up from 57 percent.
Firestone, third-largest tire company in the world and second in the United States behind Goodyear, with total 1980 sales of $4.85 billion, has reached the point where it appears assured of surviving the shakeout that analysts say is coming in the stagnant world tire market, and Nevin has turned his attention to improving the company's performance. In June, he submitted to Firestone's directors a "strategic plan" that calls for raising the company's credit rating, achieving a 9 percent return on equity in 1982 and 15 percent in 1985, and diversifying to reduce Firestone's dependence on the tire business.
Grappling with the Firestone crisis has not cut down the flair for holding forth with iconoclastic opinions on economic affairs, government regulation, Japanese technology and American productivity that have gained Nevin a reputation as a maverick when he was president of Zenith Radio Corp.
Nevin, 54, holds an MBA from Harvard and has spent his entire adult life as a business executive, at Ford Motor Co., Zenith and Firestone. But his views are not those that might be expected from a man of his background. A fluent speaker, a public figure who keeps up a dialogue with Ralph Nader, Nevin hardly fits the stereotype of the conservative tycoon.
Samples of the Nevin outlook, obtained during a long interview at his office:
"Nobody in this country understands that American labor is about 50 percent more productive than Japanese labor. Productivity is not a function of job attitude; the Japanese, who are regarded as so quality-conscious today, are exactly the same people in terms of ethnic and cultural background who generated the junk that had 'Made in Japan' labels on it before the war. This isn't a matter of cultural heritage, it's a matter of priorities and management."
Government regulation of business, consumer protection measures and pollution controls are "not at all inherently antibusiness or disruptive of economic activity. I would make a case that the responsible businessman is as much protected by those regulations as the consumer. He is not forced to give up market share because some charlatan goes into the market with an unsafe product made cheaper. Rationally administered, I think those laws are necessary in a complex economic society."
Wall Street analysts are misguided in their stress on growth in assessing a company's future, because "more than 75 percent of the people in the world work in nongrowth industries. This great romance about growth industries is nonsense. When I went to work for Ford in 1954, the auto industry wasn't a growth industry any more, everybody had a car. It was a replacement industry, and a lot of guys got rich in Detroit, working at what the analysts would call a nongrowth industry."
American industry is likely to be "hurt more than helped" by the Reagan administration's economic policies, because the tax cuts "represented a level of revenue reduction that I frankly think cannot be offset with expense reduction in our society. If that conclusion is right, then the federal government is going to be in the money markets for increasing amounts of money to fund federal deficits. There is more chance that very high interest rates will discourage investment and job creation than that the euphoria associated with tax reduction will encourage them. The net impact may be negative."
Nevin said, "Many businessmen felt we would be better off to wait for tax reductions till we got the spending cuts to balance the budget, but business support for the program was like a high school pep rally before the homecoming. Now the market's off 17 points . . . . those guys aren't voting the same way on Wall Street that they were when they were writing to their congressmen."
Firestone has about 80 percent of its $3.1 billion in total assets tied up in its worldwide tire operations, a far higher percentage than the other major U.S. tire companies, which have diversified. General Tire and B.F. Goodrich, for example, have less than 40 percent of their worldwide assets in the tire business.
That means that Firestone, at least in the short term, must rise or fall with its tire business, as Nevin acknowledged, and tires are a stagnant industry. A recent analysis of the worldwide tire market prepared by Merrill Lynch International said that 1980 was a decisive year for the tire industry, with American tire manufacturers shrinking and, Goodyear excepted, pretty much forced to abandon a global strategy in order to preserve their domestic positions. The only tire companies likely to grow in real terms are Michelin of France and Bridgestone of Japan, and they, along with Goodyear, are likely to dominate the industry, the study concluded.
The study predicted that by 1985, Bridgestone would overtake Firestone as third in total sales, behind Michelin and Goodyear, and that the gap between those three giants and the rest of the industry would continue to widen. Nevin, naturally, does not agree.
Referring to the growth of Michelin and Bridgestone, he said, "There is a tendency on the part of stock analysts who see a chart of growth to see that the line is going up and say that it will always and forever go up. That theory says that Waterloo never happened. It's silly."
He acknowledged that Firestone cannot match the efficiency or productivity of Michelin's new U.S. plants. But he said Firestone could remain competitive by modernizing its factories, which would require much less capital expenditure than building new facilities. Bridgestone, which is making a major attempt to penetrate the U.S. market, will be a "real threat," Nevin said, but cannot match Firestone's dealer network of 1,400 company-owned stores and more than 3,500 independent dealers.
To protect its long-term future, he said, Firestone is contemplating diversification, but "we would be ill-advised as a company to run out and buy somebody else's business just so we could say we are diversifying. We'd have to divert management talent to run it. I'm interested, I hope that someday Firestone will have as much invested in other businesses as it does in tires, but in the short term we have to run our tire business right."
Nevin is proud that his performance at Firestone has drawn high grades from the Wall Street analysts he professes to ignore. The only subject on which he said he feels defensive is the decision to lay off more than 25,000 workers.
"We were at the brink of economic disaster," he said. "The issue was not whether to keep those jobs, the issue was only when to stop taking the losses. There was no one in this world who could have saved those jobs. You could have risked the jobs of the other 80,000 people in this company by trying to hang on for another year or two, and this company had gotten into a lot of trouble by doing that."