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January 22, 2007 01:00 AM

Goodyear lost more than $30 million a week during strike

Brad Dawson
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    AKRON — The nearly three-month strike at 16 Goodyear manufacturing sites in North America cost the company $30 million to $35 million per week in the fourth quarter.

    Richard J. Kramer, the tire maker´s executive vice president and chief financial officer, revealed the figures during a Jan. 9 investor conference call. Kramer and other company officials, including Robert J. Keegan, Goodyear chairman and CEO, used the forum to discuss the impact of the 86-day strike by the United Steelworkers union.

    Lower production volumes and lost sales were the primary negative results of the strike, according to Kramer. Lost sales and other costs also will linger into the first half of 2007, he said.

    Keegan said by the end of the strike-workers ratified a new three-year master pact Dec. 28 by a 2-to-1 margin-the affected plants were running at about 60 percent of normal production levels. Those North American Tire and Engineered Products facilities should be operating at pre-strike levels by the end of January.

    The company is pleased with how the reintegration has progressed, said Jonathan Rich, president of the North American Tire business unit. About 15,000 Steelworkers at 12 U.S. and four Canadian facilities returned to work on or about Jan. 2 after walking out Oct. 5. The firm has been working with customers individually to make sure their needs have been met.

    More details about the strike´s effects on the fourth quarter and in 2007 will be revealed during the company´s year-end conference call in February.

    Goodyear reiterated it expects to save about $610 million over the life of the three-year master contract that runs through July 22, 2009, and realize ongoing savings of $300 million per year. Keegan said the new master contract represented a "powerful milestone" for the company.

    Reduced legacy costs and capacity and increased productivity were among the major benefits for Goodyear in reaching the agreement, officials said.

    The legacy cost savings are driven by the company´s commitment to a Volunteer Employees´ Beneficiary Association trust to manage retiree health care benefits. Under the plan, agreed to in the contract, Goodyear will contribute $1 billion to the trust and effectively end its responsibility for USW retiree health care.

    The VEBA contribution will help eliminate about one-half of the company´s projected pension obligations, Kramer said, from $2.6 billion at the end of 2005 to $1.3 billion at the end of 2007. The move also will save $110 million annually in retirement benefit expenses and improve cash flow by $145 million per year.

    Reduction in capacity is expected to save $75 million during the length of the contract. The shutdown of the Tyler, Texas, tire plant after 2007 is slated to save $50 million annually, and the combined annual capacity reductions in Tyler and in Valleyfield, Quebec, will total about 16 million units.

    Including the shuttering of the Goodyear Dunlop factory in Huntsville, Ala., in 2003, the company will have cut 20 percent of its North American capacity, Kramer said, which will improve efficiency.

    One related project put on hold by the strike was the potential sale of Goodyear´s Engineered Products business, which includes four union-represented plants, Keegan said. Several suitors have expressed interest in that unit, and he expects the company to announce a transaction sometime in the first half of 2007.

    More than 600 jobs at Engineered Products plants could be reduced via buyouts, Kramer said. The company already announced Jan. 4 it would offer buyouts to more than 400 at the USW plants within that unit.

    While he didn´t comment directly on Goodyear´s view of the strike´s effects, a USW spokesman said the union met its main bargaining objectives by protecting its retirees and securing jobs for the future. The contract maintains quality health care for actives and retirees, he said.

    While the Tyler closing was a disappointment, the spokesman said, the $550 million Goodyear committed to invest at USW-represented plants during the life of the contract "goes a long way toward keeping those facilities competitive."

    The company said it boosted its productivity with the introduction of a new-hire program, under which new production workers would start at $13 per hour and a cost-efficient medical plan. Those new hires also would fill the void of employees lost in normal attrition, which Goodyear expects to be about 6-7 percent per year, Kramer said.

    The new-hire program is expected to save $24 per hour in salary and benefits for each new employee, Goodyear said, with a total savings of about $90 million per year by 2009. The program also is slated to save $25 million in overtime costs by 2009.

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