Goodyear Skids

Not only has Goodyear's (NYSE: GT) stock been skidding, the company was recently lapped by Japan's Bridgestone as the top wheel man in North America.

According to a report by industry source Modern Tire Dealer, Bridgestone's sales in the U.S. and Canada topped $8.5 billion, compared to just $8.3 billion for Goodyear. French tire marker Michelin came in third at $7.2 billion. Fellow U.S. tire maker Cooper Tire & Rubber (NYSE: CTB) was a distant fourth.

Goodyear has been under pressure lately and its stock has lost nearly a third of its value since the summer, when it hit highs of $37 a share. Although it's bounced from recent lows, Goodyear has been acting more like the troubled tire maker of the past; its decision to brand a GPS device makes me wonder if the company might be losing its way.

Almost half of Goodyear's sales come from the U.S. and Canada, but rising costs are also taking a toll on the company's results. The rapidly rising cost of petroleum -- a key component in tires, representing nearly half of a tire's cost -- has put the squeeze on margins as of late.

Although Goodyear's $4.7 billion in debt might be a drag on performance, the stock is now trading at just 9 times earnings estimates for 2008, which makes me believe the company has plenty of tread left. The market continues to underestimate Goodyear's ability to get a grip, much as it has since the tire maker teetered on the edge of bankruptcy at a share price of $4 back in 2003.

The recent decision to retire its highest-cost senior notes is part of Goodyear's plan to reduce its debt burden and achieve savings. The employee health-care benefits fund it created (which served as the basis for similar funds set up by General Motors (NYSE: GM) and Ford (NYSE: F)) will also end up removing a significant liability from Goodyear's balance sheet, thus putting the company on firmer -- though still not solid -- footing. Personally, I peg Goodyear's loss of the North American top-dog title as just another speed bump on its road to recovery.

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