Goodyear ‘Aggressively’ Responding to the 2009 Market Environment

At the JP Morgan High Yield Conference on February 3, Goodyear Tire & Rubber discussed industry conditions during the final quarter of 2008 as well as the corresponding production cuts it undertook during the period.

“It is widely known that the economic slowdown is having a considerable impact on consumer demand and industry volume,” said Goodyear executive vice president and chief financial officer Darren R. Wells. “Fourth quarter industry volumes were well below expected levels, prompting a significant increase to our production cuts that now extend across all business units.” Wells said that Goodyear is responding ‘aggressively’ to the 2009 environment with additional cost savings and inventory reductions. “We continue to adjust production to reduce inventory levels and to keep pace with the lower demand environment.” The company plans to announce a series of new actions on its full-year conference call, scheduled to be held on February 18.

Goodyear estimates that North America industry volumes for consumer replacement tyre shipments were down approximately 3.5 per cent for the 2008 full year compared to 2007. The consumer original equipment market was down 22 per cent in this region. In the North American commercial tyre market, replacement shipments were down 11 per cent and original equipment shipments were down approximately 18.5 per cent.

In Europe, the company estimates the consumer replacement market declined 6 per cent in 2008 compared to 2007. Consumer original equipment shipments were down approximately 4.5 per cent. In the commercial tyre market, replacement shipments were down 13 per cent and original equipment shipments were down 2 per cent.

“In response to the sharp decline in fourth quarter industry volumes, we raised our production cuts in the quarter to approximately 17 million units compared to our previous expectation of 11 million units,” Wells said. “Most of the 6 million unit increase can be attributed to the company’s international businesses, including Asia-Pacific and Latin America, and resulted in higher unabsorbed fixed cost across all regions.”

Wells also said high raw material costs remain a challenge. “Goodyear’s raw material costs were approximately 13 per cent higher in 2008 than in 2007, with much of this increase coming in the fourth quarter, which was up more than 25 per cent. We anticipate raw material cost increases to peak in the first quarter before beginning to moderate in the second quarter.”