Rubber 1939

Twenty-two years ago, while the U. S. was trying to win World War I, the Du Ponts set a young engineer, Francis Breese Davis Jr., to building the world's No. 1 guncotton plant at Hopewell, Va. Eleven years ago the Du Ponts acquired control of the sick U. S. Rubber Co., the following year put dependable Organizer Davis in to explode a case of profit-making dynamite under it. Davis quickly found out where to plant the charge. Mass production methods had not been perfected in the $900,000,000 rubber industry. As he said afterwards, "U. S. was making tires like they made the pyramids"--by hand.

The rubber industry in 1939 is no longer in the age of Cheops. It is quite ready to mass-produce upwards of 65,000,000 tires a year, if and when full production comes back. Its complaint is that while it is set up to serve an expanding economy, the public is now buying at the rate of about 50,000,000 tires a year. In the first half of 1939, the industry sold 9,217,000 tires at little enough profit to the hard-bargaining auto companies, and 17,188,000 tires at a better markup to the public. Last week its big producers were able to report quite satisfactory profits.*

Measure of the technological progress of U. S. rubber engineering is the difference between a 1926 (4.40 by 21) tire and a 1938 (6.00 by 16) tire: model 1926 sold for $24, ran an average of about 14,000 miles, costing the average U. S. car owner 1.69 mills a mile; model 1938 sold for $19, ran an average of almost 27,000 miles, cost the average U. S. car owner only .73 mills a mile. The auto industry has not stood still, but it has not any better record.

U. S. Rubber, in 1938's first half, reported sales of $67,829,786, a loss of $239,213. This year, its sales were up 30% and its profits were $4,465,397. Only $5,208,728 is needed to cover a full year's dividend ($8) on the company's 651,091 shares of preferred. Last week its preferred shares sold at $109 1/2, yielding 7.3% to income-minded buyers who counted on holding it on the possibility that Mr. Davis will offer them a trade-in for U. S. Rubber's common. The common last week sold at $43, up 466% from 1935's low, versus a 42% gain on the Dow-Jones Industrial average.

Not only technological house cleaning has put U. S. Rubber in the black at this low rate of operations. Engineer Davis has swung a sharp hatchet cutting Rubber's debt from $101,572,400 to $42,144,000, its yearly interest bill from almost $6,000,000 to well under $2,000,000. Last May he got three insurance companies who own its debt to accept an interest cut from 4 1/4% to 3 5/8% just as though he were hiring the money at the market.

About $21,000,000 of U. S. Rubber's $168,103,594 of assets is invested in East Indian rubber plantations, which assures the company of 20% of its raw material (so long as the Japanese do not grab or blockade the East Indies), partial protection against inventory losses if rubber slumps, extra profits if rubber prices skyrocket.

Goodyear reported first half sales up 23%, profits up 116% to $3,610,595 from the year before. Boss of Goodyear is opinionated, poker-playing Paul W. Litchfield, who has tough Steelmaster Tom Girdler on his board. Litchfield is a great dirigible booster, a chum of Germany's Zeppeliner Dr. Hugo Eckener. In 1936 he wanted to nominate Colonel Charles A. Lindbergh for Vice President on the Republican ticket. Last spring he urged the U. S. to barter (as it soon did) surplus cotton for a stockpile of rubber which a war would shut off.

For 31 years President Litchfield has personally done Goodyear's rubber shopping, still gives it 20 minutes to an hour a day. He carries the industry's biggest market basket, for Goodyear buys about 14 2/7% (the United States from 30% to 50%) of the world's crude rubber. With only about 10% of Goodyear's requirements produced by Goodyear's own plantations, he must gamble more heavily than his competitors on war or peace as well as recovery or depression when he goes to market. In the spring of 1937, when commodity prices threatened to run away, Goodyear bought heavily, and when Depression II got under way, Goodyear had to take a $10,343,000 loss--in spite of which Goodyear had enough operating profit left over to net $7,257,000.

Goodrich, when the rubber market collapsed in 1937, took a $5,653,000 inventory write-down which put it $878,580 in the red (even after a $593,249 profit on foreign exchange). But last week, Goodrich's President Samuel Brown Robertson reported sales up 27.4%, a $3,122,728 profit, instead of last year's $209,551 loss.

In contrast to Goodyear, which is decentralized, Goodrich is concentrated in Akron, blames 25-75% higher wages for its inability in the past to show as high a profit margin.

Last spring Goodrich demanded a 12-14.8% wage cut, compromised on 5.7%. This spring it pruned interest, like U. S. Rubber, by getting a cheap six-year bank loan with which to retire $18,319,200 of 6% bonds.

Firestone, which shoes the wheels of most top-flight U. S. racing cars, publishes its half-year report at the end of April. Last spring it had encouraging news for its stockholders in spite of the fact that one of its major customers, Motorman Henry Ford, is rapidly expanding his own tire production in the River Rouge plant. For fiscal 1938's first half (October-April) Firestone turned a net income of $2,429,738. This year's six-month net was up 11.2% to $2,851,538.

* Tires and tubes are the biggest part of the sales of the Big Four rubber companies: to U. S. Rubber slightly under 50%; to Goodrich approximately 60%; to Goodyear nearly 75%; to Firestone about 70%.

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