AKRON—No one knows how long the United Steelworkers strike at 16 sites in the U.S. and Canada will stretch, but Goodyear seems to be preparing for a drawn-out battle.
The company on Oct. 13 announced it borrowed nearly $1 billion under an existing revolving credit facility following the start of the strike. The Akron tire maker borrowed about $300 million on Oct. 5, the day the strike began, under its $1.5 billion U.S. First Lien Credit facility, the company said, and followed that up by borrowing another $675 million Oct. 13.
Goodyear had about $1.3 billion in cash and cash equivalents and about $1.6 billion in available credit lines as the strike commenced, said Richard J. Kramer, Goodyear executive vice president and chief financial officer. "This action provides additional cash in the unlikely event of a prolonged strike," he said.
About 15,000 USW workers at the 16 North American sites are participating in the strike. The master contract between the union and Goodyear covering more than 12,000 workers at 12 U.S. tire and rubber product plants expired in July, but was extended while talks continued. The USW chose to terminate the extension earlier this month.
The USW and Goodyear have been far apart on many issues since contract talks began in June, particularly job and plant protection and retiree health care. The company is seeking to cut labor and health care costs, remain globally competitive and fight the cost disadvantages of imports; the union wants to avoid the closure of one or more North American tire plants, preserve jobs and ensure that the benefits costs of former company workers aren´t laid in their laps.
Rod Lache, a research analyst with Deutsche Bank Securities Inc., said he sees three reasons why Goodyear would draw on its available credit at this point: the company is sending a message to the USW that it can "weather a long fight"; U.S. cash could decline significantly in the fourth quarter or future periods; and Goodyear wants to avoid the risk of not being able to tap its facilities if it needs them.
A prolonged strike is more likely with Goodyear´s move to boost its cash position, said John Murphy, research analyst with Merrill Lynch, in an Oct. 13 report. The drawdown also leads him to believe negotiations are not going as well as Goodyear anticipated at the start of the strike, he said.
A USW spokesman confirmed that no formal talks have taken place and none are scheduled at this time. He also condemned Goodyear´s plan to borrow money to prepare for a long labor dispute.
The length of the strike is "entirely up to Goodyear," the spokesman said, emphasizing the walkout will end as soon as the company offers the USW a fair and equitable contract. "If they want to waste $1 billion of the shareholders´ money before they do it, that is sad, but our need for a fair and equitable contract will not change," he added.
On Oct. 16, Standard & Poor´s Ratings Services placed Goodyear´s credit ratings on CreditWatch with negative implications because of the strike. S&P noted the "potential for business disruptions and earnings pressures that could result" from the walkout. Goodyear has total debt of about $7 billion, S&P said.
"Goodyear currently is able to meet most customer requirements through existing inventory, but as inventory is depleted, the company would experience shortages that could damage customer relationships," S&P said.
S&P analyst Martin King said Goodyear´s credit ratings could suffer if the strike appears likely to strain the company´s credit profile.
Himanshu Patel of JPMorgan Securities Inc. estimated the nearly $1 billion borrowed would provide the company with six to seven months of cash cushion during the strike. Thus far, Goodyear is shipping product to customers from existing inventory, operating non-affected tire plants as usual and operating affected plants with salaried employees in addition to importing supply from international operations.
The company also temporarily laid off about 300 workers at its Asheboro, N.C., steel tire cord facility because the firm has enough wire on hand to meet its current production needs, a Goodyear spokesman said.
In an Oct. 13 letter to employees, Jon Rich, president of Goodyear´s North American Tire business unit, praised the salaried work force, many of whom are being trained to build tires and perform other jobs, and who have volunteered to travel to other sites to make sure customers´ needs are met. Rich said the strike wouldn´t change the systems and procedures in place to provide quality products and they would continue to operate fully during the work stoppage.
He added that the company remains hopeful that the two sides will reach an agreement. "Because when customers buy our tires and engineered products, they won´t really care who has made them, as long as they come from Goodyear. That´s why this negotiation is not about labor vs. management; the bargaining is only about Goodyear vs. the competition."
The USW spokesman said the company should realize the problems training its salaried employees to build tires might create-a similar scenario at Bridgestone/Firestone led to the mammoth 6.5 million tire recall in 2000, he said. The USW also has safety concerns for the inexperienced people being asked to perform the jobs in the unionized plants, he said.
The Steelworkers reached accord with one of Goodyear´s competitors, Michelin North America Inc.´s BFGoodrich tire unit, in early August. The three-year deal with BFG covers about 3,400 workers at three U.S. sites.
Talks with BFS, where about 6,000 USW members work at eight production sites, have been put on hold. Like Goodyear´s, the agreements with BFS expired in July.