AKRON—Workers at 16 unionized Goodyear production sites started the new year in the unlikeliest of places — on the job.
That´s because a nearly three-month strike that had the potential to last a lot longer ended Dec. 28 with the ratification of a new three-year master contract covering United Steelworkers members working at 12 tire and rubber product plants in the U.S. Those voting approved the new deal by a 2-to-1 margin, the union said.
The total number of workers covered by the master contract is 12,600, according to the company and about 14,000, according to the union.
About 400 workers at four Ontario plants also ratified separate three-year contracts before Jan. 1.
Negotiators for both sides reached a tentative pact Dec. 22. The effective date of the contract is retroactive to the original lapse date of the previous contract, July 22, 2006, and runs through July 22, 2009, a USW spokesman said.
Hourly employees returned to work the week of Jan. 2. The transition has gone as smoothly as the tire maker could hope for, a company spokesman said Jan. 4.
Production at the affected tire and engineered products plants will increase during the next few weeks, and a full supply of Goodyear products is expected to be available soon after, the company said.
The 86-day strike began Oct. 5, with the USW citing job security and retiree health care benefits as the main sticking points among several issues. Those keys were addressed in the contract, with Goodyear granting protection from closure to 11 of the 12 master contract plants and committing $1 billion toward a trust fund for current and future retirees.
The unprotected facility, Goodyear´s Tyler, Texas, radial passenger tire plant, can be closed during the term of the contract but not before Dec. 31 of this year. The company had announced Oct. 31 it planned to shut down the factory sometime in 2007, putting about 1,100 employees out of work.
In June of last year, Goodyear announced it would reduce production of its private-label business, some of which are made in Tyler. The Texas plant, which opened in 1962, has the capacity to make about 32,000 tires per day.
The USW did secure language in the contract outlining that if Goodyear decides to close the Tyler facility, the company must shut down another tire plant not covered by the master contract before the Tyler factory. That negotiation resulted from the two sides´ debate over Goodyear´s need to cut North American capacity, a union spokesman said.
The company didn´t wait long to name that second plant: On Jan. 4, Goodyear announced it will discontinue tire production at its Valleyfield, Quebec, facility, by the end of this year´s second quarter.
The production work force in Valleyfield — which employs about 1,000 hourly and salaried workers — is represented by the Syndicat Canadien des Communications, de l´Energie et du Papier labor union. However, the USW does represent technical and office staff in Valleyfield.
The pact also says that in the event of a closure, any tires made in Tyler must be made in USW plants, according to a master contract summary. Plus, if the company leaves the markets the Tyler facility served and then at a later date re-enters those markets, they must be served by USW-represented sites and not by additional imported tires.
Kevin Johnsen, the union´s Goodyear contract coordinator, said the outcome of the strike was bittersweet. "We wanted to win Tyler protected status like the other plants, but we only got it for 2007," he said. "Still, the company has committed to building the Tyler ticket in USW plants as long as the company stays in those markets."
In December 2003, the company shut down its Goodyear Dunlop tire plant in Huntsville, Ala., following the master contract negotiations with the USW. Neither the Huntsville nor Tyler facilities had full-protection status in the 2003 agreement.
Goodyear said the Tyler closing will eliminate 9 million units of high-cost tire capacity and save the company about $50 million annually. The tire maker said previously it wanted to eliminate 15 million to 20 million units of high-cost tire capacity by 2008, and the Tyler and Valleyfield decision help exceed that goal, putting the total at about 21 million units.
Shifting the burden
The contract also settles the issue of the company´s obligation to pay retiree health care benefits. Goodyear committed to transfer all USW retiree medical benefits to a Voluntary Employees´ Beneficiary Association trust and contribute $1 billion-$700 million in cash and the remainder in cash or stock-to the VEBA trust.
The company´s offers in previous bargaining had been to contribute $560 million to the fund, and later $660 million, the USW said.
That contribution will eliminate the company´s current and future retiree benefit liability to its USW work force. It will reduce the firm´s retirement benefit expenses annually by an estimated $110 million and improve cash flow by $145 million compared to 2006, Goodyear said.
Ongoing contributions to the VEBA trust will come through cost-of-living allowance and profit sharing diversions, the union said. During the current contract, the first $1 of COLA will be diverted, generating an estimated $80 million in additional funds for retiree medical benefits.
Also, 100 percent of profit sharing proceeds will be diverted to the VEBA trust in 2008 and 2009, netting an estimated $55 million in additional funds.
Efraim Levy, an analyst with Standard & Poor´s, said the contract will help Goodyear in its drive to increase its profitability, and the cap on its retiree benefit obligations was a key factor. "The way medical costs and obligations for companies have grown, it was a big burden to lift in the long run," Levy said.
The workers were able to keep the bulk of their jobs via the contract, but eventually they´ll have to fund the retirement benefits themselves, he said. The benefit to new employees will be they´ll know what the score is coming in, he said.
The key to the pact for Goodyear was reducing its overall costs, and cutting its legacy expenses with the USW was a big part of that. The company expects the provisions of the contract to save up to $610 million during the life of the pact-compared with prestrike levels-and $300 million per year in ongoing savings.
Those savings are expected to total $70 million this year, $240 million in 2008 and $300 million in 2009.
"Reaching agreement on a contract that competitively positions Goodyear for the future is a huge achievement for everyone involved in the negotiation process," said Robert Keegan, the company´s chairman and CEO, in a statement. "The end result is Goodyear will be a stronger company, a stronger employer and a stronger overall global competitor."
The new two-tier wage structure also yields lower wages and benefits for new hires during the first three years of service, the company said, and Goodyear will implement incentive systems to help boost productivity.
The tire maker expects the combined benefits from the new wage structure and the productivity initiatives to total $300 million in savings over the life of the contract. Ongoing annual savings compared to 2006 will total $155 million by 2009, Goodyear said.
Part of the company´s drive to improve productivity is via capital improvements as well: Goodyear pledged to invest $550 million over the next three years to modernize the master contract-covered plants, the company said. The union believes those improvement investments are important because it better equips the facilities it represents to compete on a global level.
"By winning major capital investment expenditures, it secures our jobs for the future," said Ron Hoover, USW vice president and head of the union´s Rubber/Plastics Industry Conference.
Goodyear´s stock has benefited from the strike´s conclusion, rising above $20 per share the day after the announcement of the tentative agreement, and closing at $22.80 on Jan. 3. That´s the highest the company´s share price has been in more than four years.
Levy believes the resolution of the strike will improve the company´s financial health, but reiterated the "hold" recommendation on Goodyear stock. "They´re not out of the woods yet," he said.
The strike will hurt the company´s bottom line for 2006: Levy on Jan. 3 revised his fourth quarter estimate to a loss of $1.84 per share, compared to the prior estimate of earnings per share of 19 cents.
For all of 2006, the estimate is a per-share loss of 77 cents, compared to the prior EPS estimate of $1.16.
Levy is forecasting an EPS of $1.67 for 2007, with a $22 12-month target share price.
The company has not yet released its estimates on the total cost of the strike. A post-strike analyst/media conference is to be held, likely the week of Jan. 8, to discuss the costs and other issues. The USW´s estimates on the strike´s impact on Goodyear have been in the $5 million-per-day range.
While Levy said the contract looks like it will help Goodyear move in the right direction, he believes it is a hard contract for the workers to swallow. But the state of the market made concessions necessary, he said.
The contract settled many other issues that weren´t at the forefront of discussions. Other highlights of the pact include:
— buyouts offered to Tyler employees within 30 days of ratification;
— ticket protection and guaranteed staffing levels of 90 percent;
— restoration of frozen pension accrual, with a multiplier of $55 per month for each year of service;
— full seniority for all returning members; and
— continuation of cost-of-living allowances.
Perhaps the biggest post-strike issue, however, may be the relationship between the company and union. David Meyer, associate professor of management at the University of Akron, said traditionally Goodyear and the USW had the best relationship among the Big Three tire makers (including Bridgestone/Firestone and Michelin), but that might not be the case anymore.
"Goodyear has been very reasonable in the past, but the economic issues and the concessions being asked for turned it into a bitter strike," Meyer said. "You can´t blame management for pursuing its goals, but the workers always seem to pay for a company´s problems in the end. It may take some time to get things back to normal levels of trust."
Despite any animosity, Goodyear is happy the strike is over and believes they´re all part of the same team, the company spokesman said. "At the end of the day, we´re all Goodyear associates who wear the blue and gold," he said.
"(The workers) are now back and we´re all focusing on the same thing: making good product and serving our customers. We´re glad they´re back, and we´re sure they´re glad, too."