CHARLOTTE, N.C.-Continental Tire North America Inc. is cutting back car and light truck tire production at its Charlotte plant by about 30 percent to 17,000 to 18,000 units a day, citing high inventories and manufacturing costs.
The company will lay off 200 to 300 employees as it gradually cuts back production throughout June, and the reduction will last at least for the rest of the year, according to Mark Cieslikowski, president of United Steelworkers Local 850 at the Charlotte facility. Conti said the duration of the cuts is "indefinite."
The inventory problem stems from lower new U.S. car sales, since the Charlotte factory is about 60-percent dedicated to original equipment tires, Cieslikowski said. He said the facility´s already high cost structure will increase because the plant will focus on replacement tire sizes, which typically are shorter runs, requiring more mold changes and reducing efficiency.
"Unfortunately, this was our only option, as Charlotte is the highest cost plant for Continental Tire," said Rick Ledsinger, vice president of human resources for the tire maker. "It is critical that Continental Tire continues to make the changes necessary to be competitive in the U.S. tire market."
The cutbacks do not bode well for Conti´s stated goal of achieving break-even in North America by year-end. Conti Chairman Manfred Wennemer recently told stock analysts in Europe that goal "will be difficult to achieve."
Conti said it will provide layoff benefits to hourly workers in line with the union contract and for salaried employees in accordance with company policies.
The tire maker last year wrote down $64 million in assets at Charlotte to cover the depreciation of older, two-piece molds. These costs resulted in "unsatisfactory results" at the plant.
Cieslikowski said Conti broke off negotiations with the union about three weeks ago regarding a midterm reopener to their six-year labor contract at the factory and since then said talks won´t resume for another two to three weeks. The union leader said the company hasn´t spelled out to the union what contract changes are needed to make the plant competitive.
The union´s main complaint is that Conti hasn´t invested sufficiently in the facility while earmarking more than $300 million for a plant complex in Brazil, modernizing factories in Malaysia and expanding capacity at a site in Mexico, primarily to supply North American demand.
That spending plan, disclosed about a year ago, didn´t include investing in the firm´s U.S. factories. Since that time, Conti phased out tire manufacturing at its Mayfield, Ky., plant after first cutting production.
Earlier this year investment firm Morgan Stanley said Conti executives said they wouldn´t rule out closing the Charlotte factory if negotiations with the union local don´t yield progress. Asked if that might happen, the tire maker didn´t respond directly, but said in a prepared statement it is "constantly assessing" the operations of all its manufacturing facilities.