Goodyear To Cut Costs by $1 Billion Over Three Years

Goodyear has said it will cut costs by $750 million to $1 billion in the next three years, taking cash charges of $150 million to $250 million for the restructuring. The company’s share price rose 3 per cent in response. “Our clear goal is to be competitively advantaged in the tyre industry by 2008,” chief executive Robert Keegan said at an investors meeting. “We realise the rising materials, health care costs and inherent cyclicality of sectors in the industry will continue to challenge us.”

Goodyear expects to cut high-cost manufacturing capacity by 8 per cent to 12 percent, generating savings of about $100 million to $150 million per year.

Improving plant safety and other factors could save $350 million to $450 million per year and sourcing tyres, raw materials, indirect purchases and capital equipment from Asia could save $150 million to $200 million per year, it said.

Goodyear said it would seek to improve the total segment operating margin for the company to 8 per cent, with a 5 per cent margin in North America. It has had rates of 6.2 per cent and 1.5 per cent, respectively, so far in 2005.

“The company displayed a significantly upgraded, expanded, and impressive management team” compared with what had been on show before, Deutsche Bank analytsts reported. The analysts said they were “favourably impressed” by what Goodyear had to say, but remained cautious about the near to intermediate outlook for earnings. They also remarked that they “do not believe GT’s margins in Latin America and Eastern Europe [are] sustainable.” The analysts maintained their sell rating.