AKRON (Dec. 29) — Goodyear said it focused on three primary areas in its negotiations with the United Steelworkers, and the approved contract achieves most of the firm´s objectives.
A three-year contract was approved by the union´s membership, ending a nearly three-month-long strike at 12 U.S. plants.
Overall, Goodyear expects to save $610 million over the contract´s life and $300 million a year in ongoing savings.
According to Goodyear, key elements of the new pact include:
Reducing high-cost manufacturing capacity — The company won the eventual closing of its Tyler, Texas, tire plant, although delayed by a year to allow workers to take advantage of early retirement packages. Goodyear said the closing will eliminate 9 million units of "high-cost tire capacity" and save about $50 million a year.
Goodyear previously had issued a goal of eliminating 15 million to 20 million units of high-cost capacity by 2008; Tyler´s closure will eliminate 14 million.
Reducing legacy costs — Goodyear pledged to contribute $1 billion to an independently administered voluntary employees´ beneficiary association (VEBA), including $700 million in cash and $300 million in cash or stock at the company´s option.
The union said it expects to turn the stock into cash "very quickly, leaving the VEBA with no exposure to the risk of owning Goodyear stock."
Goodyear said the contract will reduce its other post-employment benefits (OPEB) expenses by about $110 million a year, improving cash flows by $145 million a year vs. 2006.
After the VEBA is established, Goodyear expects to eliminate all current and future OPEB expenses relating to the union work force, which represents more than half of the company´s projected benefit obligation for post-retirement benefits. The union added, however, that the VEBA must be approved by a federal court before it can be implemented.
Increasing productivity — Goodyear said it will implement lower-cost wages and benefits for new hires during the first three years of employment and design incentive systems to improve productivity.
The combined benefits from these measures would result in savings of $300 million over the three years of the contract. Compared to 2006 rates, the ongoing annual savings will total $155 million by 2009, the company said.
Goodyear also agreed to invest $550 million over the three years to modernize its plants.
"Reaching agreement on a contract that competitively positions Goodyear for the future is a huge achievement for everyone involved in the negotiation process," said Chairman and CEO Robert Keegan in a statement. "The end result is Goodyear will be a stronger company, a stronger employer and a stronger overall global competitor."