Rich Kramer, Goodyear Chairman, CEO, and President, joins Yahoo Finance’s Brian Sozzi to discuss business amid the pandemic, outlook on labor, Goodyear's acquisition of Cooper Tire, and future tire innovations.

Video Transcript

KRISTIN MYERS: Welcome back. I want to head to Ohio now where Brian Sozzi is standing by with a Yahoo Finance exclusive for us-- a conversation with Goodyear Chairman, CEO, and President Rich Kramer. Hi, Brian.

BRIAN SOZZI: Hey, Kristin, thanks so much. Rich, good to see you in-person.

RICH KRAMER: Great to see you, Brian. Thanks for coming here.

BRIAN SOZZI: Of course. It has been quite the tour. I spent the whole day touring your facilities here in Akron, Ohio-- definitely have to talk about your numbers. But have to start-- I've seen people in this building-- this is the most people I've seen in one building in almost two years. What is it like for you to see this amount of folks back in your headquarters?

RICH KRAMER: Well, Brian, it's fantastic. And thanks for commenting on that. We've made it a priority to create a safe workplace for our associates to come back to get the benefit of those collaborations we need to drive our business forward and to keep our culture going forward. So we've had a process of bringing people back a couple, three days a week, and now, as you saw, putting masks back on as of yesterday-- but again, in recognition of trying to create that balance between safety and watching out for employees, but also really getting people to come back, and collaborate, and see each other. It's just been absolutely an energetic environment to see everybody here. Of course, you saw how many we had here.

BRIAN SOZZI: One thing I did not appreciate is the amount of technology that goes into a tire really through commercial, through consumer tires. To that end, how important is it that people are back in the office?

RICH KRAMER: It really is, because we make a physical product. And because of that, being together and talking through how material science works, how chemistry works, how a tread's put together, what spec we have to meet for a new OEM, and having those discussions in place, even physically touching some of the materials that we have to do, makes a huge difference, particularly as we teach and have almost apprenticeships for new engineers learning how to build those products. It's key.

BRIAN SOZZI: How is the pennymac continuing to change what you do in your plants? Are people wearing masks? Are there less people in the facilities?

RICH KRAMER: So we have had masks in the plant as we've gone through the pandemic. But I am eternally grateful to our staffs in the factories. They've come to work every day since the first day of the pandemic, save for that period where we had our plants closed. But they've been on the frontline coming to work every day and making sure that our customers have tires and that, you know, you, and I, and all of us are being able to get those products that we need through commercial vehicles or last mile vehicles dropping things off to them. So thank you for all that they're doing in our factories.

BRIAN SOZZI: We all need tires. How hard is it to find workers?

RICH KRAMER: You know, Brian, it's a challenge right now, to be very clear. I mean, we have-- we've probably hired more than 2,000 people, particularly in our factories, but also in our retail stores and our commercial truck tire centers. It's clearly tough. We've experienced some of the absenteeism and the labor turnover that we've had. We've increased tremendously our training efforts. And as I said, we've hired a lot of people in our factories right here in the US.

BRIAN SOZZI: Well, it seems to be working, because tire units for you in the second quarter, up 84.3% year-over-year. Where are you seeing the recovery come back the quickest during the pandemic?

RICH KRAMER: Well, if you take two of our main businesses-- and our commercial businesses I just spoke of, our truck business-- that business has remained has been strong throughout the pandemic and remains really strong, particularly in those large fleets that we service. What's really improved has been our consumer business. And I heard you mention earlier, we've had about 80%-plus volume increase.

We've had our price mix ahead of raw materials. We're seeing demand ahead of supply, frankly, as consumers are getting out and driving again, as we've seen vehicle miles traveled up 40%, 50% during the quarter. So that's really where we're seeing the volume come back.

BRIAN SOZZI: So the production slowdowns at the OEMs-- at the Fords, General Motors-- is that impacting you guys?

RICH KRAMER: It really has. Our OE business has gone down, but I would also tell you the benefit of that is our ability, then, to service our replacement customers more robustly as all our channels, distributors, and retailers saw their inventories go way down-- frankly, all tire manufacturers' inventories went down as well. So we're able to focus on replenishing them as the OE production has gone down.

And I would say maybe a silver lining to that is this sort of demand rejuvenation may last that much longer. As the OEs will come back online, that will add another kick to the demand benefits that we're seeing.

BRIAN SOZZI: What type of cars are people bringing to you? So I own a used car. Are they bringing you beat-up tires? There's been a whole year and a half of people not using public transportation, they're using their own car. I imagine what they're bringing to you needs some serious service.

RICH KRAMER: You know, they do. But I will tell you the worst we ever saw, to your point, on treadware going down was back in the Great Recession. We saw cords coming through. We saw a lot of--

BRIAN SOZZI: So no more cords are coming through.

RICH KRAMER: It has not been nearly as bad. But I think, Brian, what's driving it is people are saying, I'm going to get out, I'm going to drive. My tires are key, they're key to my safety of my family, and they're going and replacing tires right now. And there's that pent-up demand that they're filling as well.

BRIAN SOZZI: It appears that a Ford, a General Motors, all the major automakers, they're starting to get their production back in line. What does that mean for your business over the next 12 to 18 months?

RICH KRAMER: I think it's a really good sign. And I would tell you today, our mix of business is really well-fitted to the type of vehicles they are making-- light trucks and SUVs, particularly on the premium side also helps us because we're fitted to those vehicles. But as I said, as that production tends to come back over the next 12 to 18 months as we, I would say, continue to replenish the replacement inventory channels, that production volume will shift over to OEM. So it should extend the good volume that we're having.

BRIAN SOZZI: In terms of sales and volumes, are you back to pre-pandemic levels yet?

RICH KRAMER: So we are getting close. It depends around the world I'd say on the replacement markets in China, for example, we're past it. The OE business is still down. Overall in the US, we're still down about 8% versus 2019 levels. And that's pre our acquisition of Cooper and adding their volume to us. But that's largely driven by the OE business, which we've been talking about.

BRIAN SOZZI: You have seen a good bit of inflation-- close to $500 million this year in terms of inflation-- a little bit under that.

RICH KRAMER: That's correct.

BRIAN SOZZI: How have you navigated that?

RICH KRAMER: So you know, the biggest amount of inflation we've seen is from our raw materials costs and our transportation cost. And as we look at the value we're bringing to the market in our products-- in fact, you saw some of the value in the tire technologies that we're bringing--

BRIAN SOZZI: Something I didn't appreciate. Full and fair disclosure-- didn't appreciate it.

RICH KRAMER: And I'm glad you were able to able to see how much technology goes in there, and the interest of safety, and making sure that people are having the right experiences on the road. But we've seen that cost inflation come in, and we are pricing for that inflation out in the marketplace. As I said on the call, we've had about four price increases this year. And that's really around recovering the incremental input costs that we're seeing.

BRIAN SOZZI: Four price increases this year, is that on commercial, is that on consumers?

RICH KRAMER: That's on consumer, in particular. On commercial, we've had about three. And again, that's in the United States.

BRIAN SOZZI: Are they done for this year? No more price increases?

RICH KRAMER: You know, that's something we'll have to see as raw material prices-- or excuse me, as raw material costs reveal themselves out into the fourth quarter.

BRIAN SOZZI: Has the pandemic, because of the shortages-- earlier in the year, there were shortages in rubber-- have you had to redesign how you make a tire?

RICH KRAMER: So the one thing that we can always do is sort of toggle back between the amount of natural rubber and synthetic rubber that we use. And we've had to do a bit of that. But I would tell you hats off to our team-- they have done an outstanding job making sure that none of our factories have been short of any of the materials they need, including natural rubber.

So I will tell you, it is very tight out there, particularly on some materials, and particularly on getting containers to get those materials delivered. But the team's done a good job such that it hasn't impacted our production.

BRIAN SOZZI: Definitely want to talk a good bit about the future of the tire, because what I saw here today is absolutely-- it really is, it's mind-blowing. But you did mention the Cooper Tire acquisition-- close to $2.8 billion acquisition that I would say has flown under the radar a bit on Wall Street. What's your opportunity with that business?

RICH KRAMER: So our opportunity, I would say, is four-fold. One, it really now solidifies us as the US tire company in the global tire industry. Cooper was the other remaining US tire company-- a little bit smaller, didn't have as much breadth as we did, but now clearly we are the US leader in the global tire industry. Secondly, for our consumers and our customers, they get even a broader product portfolio particularly, the strong products that Cooper Tire has in the light truck and SUV markets, which are the fastest-growing segments of the auto industry.

Thirdly, from a balance sheet or a financial perspective, it actually improves our leverage, it gives us more scale, and actually gives us more earnings as we look forward, and that actually helps us with some of the investments we need to make in the technologies that we see coming down the road.

And then finally, but not lastly, there was a tremendous cultural fit between the Cooper teams and the Goodyear teams. And I think when you're talking about an acquisition, that cultural fit is integral to making sure that you get the synergies that are out there.

BRIAN SOZZI: How much in synergies will come from this deal?

RICH KRAMER: So we said about $165 million in synergies from a P&L perspective and about $240 million in cash or working capital out there. And of course, we're intently focused on it.

BRIAN SOZZI: I'm sure. This significantly increases your market share in the tire industry. Are there other acquisitions out there to be had?

RICH KRAMER: So you know, I think we're pretty happy with where we are with the Cooper acquisition. I would tell you, Brian, though, you know, where we think about things is really on the technology side. As you and I have, I think, spoke in the past, we have a corporate venture capital fund where we're making some investments in technologies that we think will help us with mobility in the future. And I think that may lead us to some things that could make sense as we think about the technological advancements that we need to make.

BRIAN SOZZI: Well, let's talk about the tire of the future. I happened to see a tire in one of the clause here that had no air. When might I see something like that on the road?

RICH KRAMER: So you're talking about the non-pneumatic tire-- airless tire, if you will. And you'll actually see it on the road today in Jacksonville. We just announced with Local Motors, we have an NPT or non-pneumatic tire functioning right now. And, Brian, it's a great tire.

As you and I chatted a bit, it's a fit for purpose tire-- on a vehicle that's going a slow speed and a predetermined distance on routes that are predictable, there's no need to have an overengineered tire that can go tested at 100 miles per hour in all kinds of conditions. So as we think about mobility, and how it's evolving, and the different ways it's going to, an NPT has an excellent role to play in how you, and I, and how consumers are going to use mobility in the future.

BRIAN SOZZI: So do you think we will see an airless tire in our lifetimes?

RICH KRAMER: The NPT, I would say, is an airless tire in that regard. So yes, I think it's there. And I think you'll see more of, again, particularly on fit for purpose types of transportation.

BRIAN SOZZI: You dropped this line, I believe, in the earnings call-- you see a path to a sustainable tire. When?

RICH KRAMER: So we've designated 2030 to have a tire made out of fully sustainable materials. And we definitely think that that's possible. That will be a result of certainly substitution of materials, like we're doing now with soybean oil and rice husk ash, taking out petrochemicals in the tire. We also see new inventions that we see on the horizon that will allow us to do that. But clearly, sustainability, both in the materials as well as the entire lifecycle of the product, is really integrated into everything we do right now.

BRIAN SOZZI: And smart tires-- where is Goodyear on that?

RICH KRAMER: So it's really, for me, a really exciting area. We just released a product called Goodyear sightline with sightline technology. And there, we have a tire already through sensors and on-board dash devices that can actually predict tire performance to fleets out there. Today, we can actually predict pressure and temperature, certainly identifying the tire through things like RFID and the sightline technology.

We're going to move that towards wear and load by the end of the year. You'll see it on some OE vehicles at the end of the year. And we'll move our way to also be able to measure and predict friction, which will give the vehicle a tremendous amount of information. So probably the most exciting change that we see in the tire are smart tires going forward.

And if I could, Brian, I heard the piece earlier where Julie said, hey, we haven't seen that much change in a tire for a long time. I'd say she's right. But I'd say starting with EVs and moving on to what we can do on a connected tire with autonomous vehicles, big changes are coming and they're pretty exciting.

BRIAN SOZZI: Shoutout from Goodyear CEO to our very own Julie Hyman, of course. So you have sustainable tires, intelligence or smart tires-- how big a challenge is it to make tires for electric vehicles? There is an electric vehicle boom not only in the US, certainly over in China-- and those are two markets, obviously, you play in.

RICH KRAMER: So we're doing it right now. Tires for EVs are key to our strategy. And I'd say the first move as we think about the evolution of new mobility-- right now, Brian, I'd say about 60% of all the new business one on OEMs are on EVs. And that's really a reflection of being a technology leader. The difficulty in making a tire for an EV is you've got to deal with incremental weight from the batteries that are on the car.

You also have to deal with the durability because of the torque going directly to the wheels and, therefore, putting more use on the tires, meaning they can wear out faster. At the same time, you have to increase the range or reduce the rolling resistance to increase the range of the vehicle, because just like automakers today with ice engines want to improve their miles per gallon, EV makers want to increase the range they get and the tire is integral and can add a lot of range to that. So we have to do that.

And at the same time, we also need to make it quiet. Since there's no engine running, a loud tire will really be exaggerated in an EV. So we do things like foam in a tire, which dampens the energy-- dampens the sound.

[INTERPOSING VOICES]

BRIAN SOZZI: Foam in tire.

RICH KRAMER: Foam in tire to dampen the noise. And then we do all that without giving anything up, of course, on safety, but also the and handling of the tire. And this is actually doing things that have opposite effects. The way you saw the heavier tires put more rubber on it, make the tread bigger. But when you do that, you reduce rolling resistance and you don't really get as far. So the technical challenge is to be able to handle the weight in the torque while also being able to improve rolling resistance. And I'm happy to say Goodyear is absolutely a technology leader in driving EV technologies going forward.

BRIAN SOZZI: It sounds challenging to make these tires-- perhaps more challenging than the typical tire you would see in a Goodyear store-- you go into a Walmart and pick a tire off the shelf. Is the EV boom, is it good for you guys-- do you have to invest more money to make these tires?

RICH KRAMER: Absolutely. Absolutely. And I would say-- you know, Brian, I would tell you tire technology is critical to everything we're seeing going forward-- certainly critical to mobility, certainly critical to infrastructure and supply chains, and critical to sustainability going forward. So I think the investments that we have to make, clearly, there will be some to be able to deal with the new materials and the new processes that we have to put forward. But it's a great time to be in the tire industry. It's even a better time to be in the tire industry as a technology leader.

BRIAN SOZZI: Two more for you-- global economy coming back, we're still dealing with a lot of effects from the pandemic. Does it look like the US-- is it growing 5%? Is it 6%? Is it more or is it less?

RICH KRAMER: So, you know, listen, I'm not an economist. I think those GDP forecasts make a lot of sense from what we're seeing in the US. And I think that pent-up demand is still out there. Our sellout trends are still very good in the US. But you rightly point out, Europe hasn't come back as fast. We see it coming back faster.

And I should say, because we certainly have a lot of associates there, places like Asia, the ASEAN countries, and also in Latin America, COVID is still very, very real and those economies are closed-- a lot of lockdowns still going on. So there's a lot of room for improvement in those. And really, our hearts go out to those people who are still having to deal with it in that visceral way.

BRIAN SOZZI: Last one before I let you go-- you're the second-longest serving CEO of Goodyear Tire, which is, what, 123 years old? Have you reflected on this at all?

RICH KRAMER: Not really. There's probably time to reflect on that some other time. Lots of work to do. And I would tell you since I've been in this role and been with the company, it really has been a continuing evolution. So you get by one challenge and you have to deal with another.

And I would tell you today, that really is this inflection point of new mobility. Everything that we've done to run this company, to even make the tires that you've seen today, is going to change going forward. And that inflection point is here. So as I think about what I have to do as a leader, I'm really thinking about what's coming, not what I've done in the past. And it's really exciting.

BRIAN SOZZI: We'll leave it there. Well, sign me up for some of those non-air tires. I'm tired of putting air in my tires. I've been doing it for 39 years, I've definitely had enough of it. Richard Kramer--

RICH KRAMER: We're going to do it.

BRIAN SOZZI: Goodyear Chairman and CEO. Good to see you. Thanks for having us today.

RICH KRAMER: Brian, thank you so much for coming. You're welcome back anytime.

BRIAN SOZZI: Appreciate it. Kristin, back to you.

KRISTIN MYERS: All right, thanks so much, Brian, for bringing us that conversation.