Goodyear to Invest $600 million in US Union Plants Over 4 Years

Goodyear Tire & Rubber Company has announced that its four-year labour contract with the United Steelworkers union (ratified on 18 September) could save the company as much as $555 million in savings before a potential profit sharing impact. The company also committed to investing $600 million in its USW facilities over the next four years. The seven plants covered by the master agreement are in: Akron, Ohio; Buffalo, New York; Danville, Va.; Fayetteville, N.C.; Gadsden, Alabama; Topeka, Kansas; and Union City, Tennessee.

According to a Goodyear statement, these changes are expected to provide Goodyear with cost savings of approximately $215 million over the term of the contract. Combined with savings realized through “pre-bargain agreements to reduce staffing levels at five plants,” the company expects to realize $555 million in total savings over the term of the agreements. However, financial analysts at Deutsche Bank estimated that the agreement will result in $155 million of gross annual savings by 2013. Their response was to raise their share price estimates for 2010 and 2011 to $1.85 and $2.45 from $1.70 and $2.20 respectively.

“We continue to believe our estimates are conservative. Our forecast does not include the impact of prospective North American price increases. Two of Goodyear’s competitors have already announced price increases in North America of ‘up to 12 per cent’. We expect price increases to eventually trickle up through the industry and not be limited to low-end tyres (which represent approx. 20 per cent of the market),” the analysts commented.

The analysts predict that every 1 per cent of additional North American pricing will add $0.19 to its estimates. Referring to a projected recovery of replacement tyre sales volumes, Deutsche Bank conservatively predicts Goodyear will sell 2.3 per cent more units in 2010 and 1.7 per cent more in 2010.

“Although we have achieved significant cost savings, the new realities of our industry require that this agreement do more than simply hit a cost-cutting number,” said Richard J. Kramer, Goodyear’s chief operating officer and president, North American Tire. “This innovative agreement can truly change the way we run these factories. We can improve our efficiency, flexibility and competitiveness in both the near-term and long-term, driving working capital improvements and allowing us to be more responsive to the needs of our customers.”