Goodyear Prepares for Long Strike

No-one was surprised when the United Steelworkers Union announced its Goodyear-employed members would go on strike on Thursday 5 October. Now, days later with no news forthcoming from either side, it looks like 14,600 Union workers at 12 of Goodyear’s US plants and four additional plants in Canada, are preparing for the long haul.

Some analysts say the strike could cost Goodyear $2 million a day. Others are less optimistic. One Deutsche Bank report suggested that for each day Goodyear workers are burning wood on the picket line, Goodyear would be burning $5-6 million. Some analysts put the figure even higher.

Either way, Analysts agree that, despite a difficult financial time in recent years, Goodyear currently has the cash to dig in and therefore consumers shouldn’t see price rises just yet. And, in addition to the company’s cash position, Deutsche Bank analysts suggest Goodyear has up to 21 days of excess stock.

“Goodyear is in a very strong position,” Shelly Lombard, a credit analyst for corporate bond research firm Gimme Credit told the Akron Beacon Journal. Goodyear can tap about $3 billion — $1.5 billion in cash and the rest, credit — to weather the strike, she said. And perhaps more importantly investor sentiment is said to be with the company.

The reason being if and when Goodyear wins the war of attrition, the company could save $50 million a year by closing a US plant. However a prolonged strike would likely cause significant earnings deterioration and cash burn, not to mention risk market share losses.

One unresolved bone of contention between the two sides is the top-level management’s pay packages. Since workers agreed to close a plant and cut pay and benefits in 2003, union members are not happy with the current proposals.

Last year’s Securities and Exchange Commission records show Goodyear CEO Robert J. Keegan collected a $2.6 million bonus, while the head of the company’s North American tyre division, Jonathan D. Rich, collected $680,000. CFO Richard Kramer got over $587,000, while senior VP and general counsel Thomas Havie got $560,000.

In 1997 Goodyear weathered 19 days of striking. The longest strike the company has endured was a 142-day battle in 1976.