GenCorp Inc. History

Company History:

GenCorp is a leading manufacturer of aerospace and defense products, including rocket motors and bombs. Through its several divisions, the company also produces plastics as well as automotive and satellite communications equipment.

GenCorp began as General Tire & Rubber, a company founded in 1915 by William O'Neil. O'Neil had served as a dealer at the Firestone Company until 1911, when he became dissatisfied with a reduction in his sales territory and left to form his own company, Western Tire and Rubber, which focused on the manufacture of tire repair materials. In 1915 O'Neil moved his operation from Kansas City to Akron, Ohio, where his father, Michael O'Neil, owned a department store. The O'Neils established General Tire and Rubber with $200,000 in capital, mostly from Michael, who became company president, while William became general manager. The two hired several Firestone managers to help manage the new business.

General initially manufactured repair materials, beginning the production of tires in 1916. By 1917 the firm was expanding its factory and dealership network and embarking on its first advertising campaign. A difficult time for tire makers began at the onset of World War I, as the rubber supply was diminished, and General Tire, along with its competitors, had trouble meeting dealer demand. Immediately after the war, the industry boomed, and 1919 saw record highs in tire sales. However, the gains realized by the industry were shortlived. An economic recession in 1920-21 hurt tire sales, and although the cost of raw materials plummeted, tire makers entered into a price war that proved damaging to the industry. Nevertheless, General managed to continue its expansion, aided by its concentration on the higher-price market and effective advertising campaigns, while larger, overextended competitors such as Firestone struggled.

By 1929 General was operating 14 retail stores and had garnered 1.8 percent of the tire market. In 1931, while the Great Depression weakened many smaller rubber firms, General, which had become a leader in the industry, was able to purchase two additional companies, Yale Tire and Rubber and India Tire and Rubber. Although General's command of 2.7 percent of tire sales in 1933 represented a much smaller market share than Goodyear's 30 percent sales figure, General was considered an important player because of its specialization in higher-priced tires. The effects of the Great Depression did, however, prompt General to diversify its holdings. During the 1930s the firm began investing in local radio stations, and, in 1942, it bought the Yankee Network, a Boston-based chain of radio stations.

During World War II General, like other tire companies, switched part of its production to meet defense needs. The firm produced motors and rockets in Ohio, West Virginia, and California and acquired Aerojet, a missile manufacturer. A plant General had built in Indiana to make mechanical goods was converted to the production of aviation and other military supplies. The war also led to an increase in synthetic rubber production, which would have applications in civilian sectors after the war.

General was among several medium-sized tire firms that expanded immediately after the war, fueled by a boom in car sales. The company purchased Pennsylvania Rubber and 45 percent of Mansfield, another rubber company. General's media division also received a boost during this time, with the establishment of television as an important source of information and entertainment in many American homes. General's Boston networks began television broadcasting in 1948.

In 1950 the onset of the Korean War disrupted supplies of natural rubber, leading to U.S. government quotas on rubber consumption over the next two years. This prompted an increase in the production of synthetic rubber, which soon became the primary raw material in U.S. rubber production. General built a synthetic rubber plant in Odessa, Texas, in 1955. By 1960 tubeless tires had been introduced into the market, and synthetic fibers such as nylon and rayon were being used by tire makers as bonding agents.

During this time, General continued to expand its line of retail stores, which increased from 72 stores in 1955 to 164 in 1961. The company also continued to diversify. Having maintained its Aerojet subsidiary after World War II, General started an industrial products division that manufactured plastic and metal parts for aircraft and electric appliances. Furthermore, in 1956 the firm bought a majority interest in A. M. Byers, a manufacturer of steel pipe and wrought iron. General's media holdings were also enhanced through the company's purchase of television stations in New York, Los Angeles, and Memphis. In 1955 General purchased RKO Pictures from Howard Hughes for $25 million. RKO's stock of 750 feature films was thereby made available to General's television stations, which aired many of these films. Although General sold RKO's movie business in 1958, its RKO-General subsidiary remained in radio and television.

In 1960, company founder William O'Neil died, and his sons assumed control of General. Jerry O'Neil ran the tire business in Akron, while Thomas O'Neil ran RKO-General in New York and John O'Neil served as General's chief financial officer in Washington D.C. Industry observers later claimed that the operations of Thomas, Jerry, and John lacked coordination and long-term vision, which would contribute to several challenges for General in the 1960s.

In 1965 RKO-General's Los Angeles station's license renewal was opposed by the Federal Communications Commission. Charges that the station's programming was unworthy of retaining its broadcasting license resulted when Thomas O'Neil began cutting back on his programming budget, maintaining that his focus was on making money, rather than achieving high ratings. Problems also ensued at the company's Boston station, where RKO-General was accused of pressuring the company's suppliers to advertise on the RKO stations. While these cases were being appealed, alleged misconduct at General Tire became public. General was accused of maintaining a secret slush fund, which made payoffs to people involved in the overthrow of Chile's Allende government, and of making illegal political contributions in the United States. A special investigation by the Securities and Exchange Commission listed $41 million in questionable transactions by General and its subsidiaries. The RKO licensing hearings became embroiled in these alleged improprieties.

A decline in the tire business following the oil embargo of 1974 added to the firm's difficulties. During this time, General made one-third of its tire sales directly to U.S. auto companies, and when those companies began to struggle from the effects of Japanese competition, General's profits declined. In fact, when General's profits fell to $82 million in 1979, representing a decrease of 29 percent, RKO became the company's leading contributor and was responsible for a record 43 percent of the company's profits. In 1981 General was the fifth-largest U.S. tire maker, but tire making operations were so troubled that the company began selling off its other operations. Cablecom General Inc., a cable television operation, was the first to go, selling for $105.8 million. A tire plant in Akron was then closed down as were seven retreading plants, while the Aerojet subsidiary sold several of its industrial companies. During this time, Jerry O'Neil took on General's rubber unions to win concessions necessary to make the firm's tires competitive.

General also struggled to improve its tires, signing technical agreements with Germany's Continental Gummi-Werke and Japan's Toyo Tire & Rubber Co. While the firm had once been a leading manufacturer of truck tires, the quality of its truck radials was surpassed by that of rivals during the 1970s. In 1976 General tires maintained 17 percent of the truck market, but that figure fell to 12 percent over the next five years. In 1980, while its tire sales approached $1.5 billion, General saw profits of less than $10 million.

In 1982, RKO lost the license for its Boston television station. Nevertheless, the company's Los Angeles station was allowed to retain its license, and the New York station was saved when Congress voted to grant it a five-year license on the condition that it be moved to New Jersey. In an effort to increase the popularity of its networks, RKO began spending more to secure the rights to rerun popular television series.

In 1983 Jerry O'Neil announced that he would be succeeded as chief executive by a non-family member, Warren J. Hayford, who was slated to lead a restructuring of General into a holding company called GenCorp. However, one year after joining the company, and the day after the plan was to be announced, Hayford resigned over differences with the O'Neils. Nevertheless, the restructuring went forward, and Aerojet, RKO, and General's tire, industrial products, chemicals, and plastics divisions all became subsidiaries of the holding company.

Aerojet's business grew rapidly during the 1980s, partially as a result of the Reagan administration's defense buildup. Aerojet received large contracts for the MX missile and several air force projects, as well as $146 million in Strategic Defense Initiative contracts.

In 1985 Bill Reynolds, a former TRW Inc. executive, was named chief executive of GenCorp. A graduate of Stanford University's M.B.A. program, Reynolds immediately introduced formal strategic planning and other professional management techniques. He also began dealing with some of GenCorp's recurring problems, such as continuing litigation over its Los Angeles and Memphis television stations, California pollution problems, an Algerian breach-of-contract lawsuit, and the significant losses incurred by Denver-based Frontier airlines, of which GenCorp owned 45 percent.

Reynolds soon announced a restructuring that involved selling the Los Angeles and New York television stations as well as the firm's stake in Frontier. The price of television stations was climbing rapidly, and the FCC had just relaxed its requirements for license transfer, making the sales more attractive. WOR New Jersey was sold to MCA for $387 million in early 1986, while KHJ-Los Angeles was sold to Walt Disney for $320 million in early 1987. The firm used the money to buy back large segments of its stock, partly to guard against takeover attempts. The restructuring had an immediate positive effect, with GenCorp achieving sales of $3.1 billion and profits of $130 million in 1986, its best results in years.

During this time, GenCorp management decided to concentrate on its defense operations rather than reinvest in its original tire business. Consequently, the company sold General Rubber & Tire to Germany's Continental AG for $660 million. General Tire and Continental already had technical and production links, and Continental wanted to expand further into the United States. Furthermore, this move helped GenCorp resist a $2.2 billion hostile takeover attempt by The Wagner & Brown Investment Group and AFG Industries Inc., which together already owned nearly ten percent of GenCorp. As the two companies had hoped to retain GenCorp's tire business and sell its aerospace and entertainment operations, GenCorp's sale of General Tire helped to discourage the takeover.

Further GenCorp cutbacks included the sale of RKO Bottling to IC Industries for $395.5 million and the shedding of its RKO properties. GenCorp received $32.7 million for its two Washington, D.C. radio stations, $750,000 for its Memphis radio station, $12.6 million for WAXY-FM, Florida, and $39 million for television station WHBQ in Memphis, purchased by Adams Communication. The firm had profits of $210 million in 1989 on $1.94 billion in sales.

Despite the selloff of General Tire and its concentration on aerospace, GenCorp remained active in the automobile market through its GenCorp Automotive affiliate. In 1988 GenCorp Automotive formed GTY Tire with Yokohama Tire and Toyo Tire & Rubber to manufacture radial tires in the United States. It also opened a $65 million plant in Indiana to manufacture reinforced plastic auto parts. In 1990 the affiliate formed GKK Automotive with Japanese firm Kurashiki Kako to sell vibration-control parts.

GenCorp's Aerojet subsidiary continued to meet with success in its work on propulsion systems, including gel propellants for rocket engines. In the early 1990s, Aerojet was bidding on such projects as the manufacture of the main engine for the Advanced Launch System sponsored by the National Aeronautics and Space Administration and the U.S. Department of Defense.

As the United States experienced an economic recession in the early 1990s, GenCorp made several moves to counteract declining sales. In 1992, the company restructured its debt, leading to a significant reduction in interest payments. Despite lower profit margins during this time, GenCorp had become a more focused, stronger company and was poised to explore a broad range of opportunities as the economy recovered.

Principal Subsidiaries: Aerojet-General; GenCorp Automotive; GenCorp Polymer Products; GTY Tire.

Further Reading:

• Dworkin, Peter, "The O'Neil Brothers' $350-million Hassle with the FCC," Fortune, April 21, 1980.
• French, Michael, J., The U.S. Tire Industry, Boston: Twayne, 1991.
• "General Tire Changes More Than Its Name," Business Week, January 30, 1984.
• "General Tire: Pondering Spinoffs to Make the Most of Its Assets," Business Week, September 7, 1981.
• "General Tire: Searching Again for a Driver to Map the Road to Growth," Business Week, February 13, 1984.
• Schiller, Zachary, "GenCorp Isn't All in the Family Anymore," Business Week, June 24, 1985.
• ----. "Is It Just Beginner's Luck at GenCorp," Business Week, November 25, 1985.

Source: International Directory of Company Histories, Vol. 9. St. James Press, 1994.