Can tire maker Goodyear (NYSE: GT) get good mileage from extending its brand name, particularly on something unrelated to tires?
The largest North American tire company will bestow its winged boot upon a series of GPS devices, some of which will feature Bluetooth capabilities and MSN Direct from Microsoft (Nasdaq: MSFT) for traffic and weather information. The eight units were unveiled at this week's Consumer Electronics Show in Las Vegas; price points were not mentioned.
Although the Goodyear name holds a lot of cachet with motorheads -- particularly NASCAR fans -- that won't necessarily spur sales of GPS systems. With raw material costs for making tires rising, Goodyear is undoubtedly looking at the fat margins top GPS maker Garmin (Nasdaq: GRMN) enjoys, and it must wistfully be wondering whether it can't grab even a small slice of that pie.
The market researchers at RNCOS see the GPS market hitting $30 billion this year, though the greatest gains may come from the people-tracking and handset segments. That bodes well for Garmin, which just unveiled a handheld and wristwatch version of its GPS system at this year's CES. But fat profits engender lots of competition, and Garmin faces challenges from TomTom and Magellan.
Considering the cutthroat nature of the GPS business, Goodyear's entrance here makes me wonder what the tire maker really hopes to gain. Its GPS will be made by a company called The NCC, which makes electrical devices for Stanley Works (NYSE: SWK) and Westinghouse, and which got its start as The National Christmas Company, making holiday displays and components. Among other features, the Goodyear GPS will offer a remote control to enable "hands free" driving. Hmmm. You put down your phone, but pick up a remote? Doesn't make sense to me.
Goodyear has been doing well lately by focusing on making tires. It's been increasing its profits by selling off non-core businesses and concentrating on putting out high-margin tires. While sales growth rates lag the S&P, the tire maker also reports skimpy returns on assets, which are still saddled by mountains of debt.
Looking at how entrenched Garmin and TomTom are in this industry, this appears to be a vainglorious attempt to divert attention from Goodyear's completing its turnaround story, just as some scary trends are emerging in that effort.
The Goodyear name has a lot of brand value. Let's just hope the company doesn't get lost by going off in new directions.
Find your way with these related Foolish articles:
