Goodyear will continue to cut costs and ``get lean'' despite disappointment over Standard & Poor Corp.'s recent decision to downgrade the tire maker's debt rating.
Standard & Poor's reduced the Akron tire maker's rating by two levels on Jan. 18 to ``BB+'' from ``BBB.'' The move places the company's senior unsecured debt into a tenuous area-most often referred to as ``junk''-that leaves serious questions about Goodyear as an investment opportunity and the firm's cost of borrowing.
Daniel DiSenso, a Standard & Poor's analyst, said the lowered rating reflects the company's weak operating performance and profit potential. He noted his rating agency put Goodyear's ratings on its CreditWatch in November, saying at the time ``competitive pressures and weakening demand could delay the expected improvement in the company's financial profile factored into existing ratings.''
Goodyear did much to make improvements toward achieving profitability in 2001, cutting production capacity and jobs, raising prices, increasing volume and reducing inventory. But Standard & Poor's indicated the cuts and other measures haven't been enough to offset the economic recession or the nature of the tire industry.
``We are disappointed. Goodyear has plans in place to improve profitability and continue to reduce debt,'' said Robert W. Tieken, Goodyear executive vice president and chief financial officer.
``During 2001, we took decisive action, focusing on improving liquidity and cash flow generation, introducing new and innovative marketing programs, improving the flexibility of our manufacturing operations and strengthening our cost and investment control processes.''
The firm needs to reduce its heavy capital costs substantially and lower its debt-to-capital ratio, Mr. DiSenso said. He also referred to the manufacturing ``footprints'' of the tire industry that have hurt Goodyear and its competitors during the recent downturn-labor- and capital-intensive, with high costs in both areas, and limited flexibility.
Most recently, the negatives also have included great pricing pressures on the original equipment side and excess capacity, especially in North America, he said.
A rating downgrade could mean some limits in credit measures, Mr. DiSenso said. It also could deter or even prohibit investors from looking into Goodyear stock.
But a company spokesman said Goodyear believes the rating change won't have an overwhelming impact on its current business path.
``We have ample cash flow and if we have to pay slightly more for borrowings, it will be minimal,'' he said. ``We're committed to making improvements and will continue with our new product introductions and various investments.''
The spokesman added it is frustrating in some ways for Goodyear because it has attempted to address its problems, but it also knows it is not alone in its suffering.
``Everyone is suffering in the global economy, including all the tire makers,'' he said. ``Unit sales are down for everyone in the North American tire business. Truck tires alone are down 35 to 40 percent.''
Mr. DiSenso also said the recession is a big factor in Goodyear's plight. Cooper Tire & Rubber Co.'s rating was downgraded recently as well, he said, though unlike most of its big competitors it has no OE tire presence.
But Goodyear also had some problems before the downturn, including the $900 million in debt it took on as a result of its 1999 alliance with Japan's Sumitomo Rubber Industries Ltd. Goodyear took control of Sumitomo's Dunlop facilities in the U.S. and Europe.
``That has yet to bear fruit,'' Mr. DiSenso said. ``Goodyear has done many things to help its situation, but it hasn't borne out.''
Goodyear may take some short-term hits now and in coming months. The company releases its 2001 year-end and fourth-quarter results on Feb. 8, and the consensus analyst projection is a net loss for the year.
But the firm is positioning itself for the economic rebound that eventually will come, the spokesman said.
``We can't forecast when it will come, but we've become leaner and have gotten costs down in many areas,'' he said. ``We'll continue with our actions for when things come back.''