MAYFIELD, Ky. (Aug. 29, 2003) — Continental Tire North America Inc., looking for ways to reduce costs and improve its bottom line, wants to reduce production at its Mayfield tire plant and renegotiate its labor agreement with workers at Mayfield and perhaps other plants.
Conti's approach to the union at Mayfield, expected to center on health and other social benefits costs, may be the first step toward a plant closing in North America, according to at least one financial analyst who follows Conti.
Local union leaders at the firm's 43-year-old Mayfield plant confirmed Conti management approached them in early August about reworking their existing labor agreement, which is not due to expire for another three years.
Continental advised workers of its plan to cut back production at the Mayfield factory but since then has not provided the union with any details or set up a meeting to discuss the matter, said Terry Beane, president of United Steelworkers of America Local 665 at Mayfield.
The tire maker has not approached the union at its other two unionized plants in the U.S.—in Charlotte, N.C., and Bryan, Ohio—according to a Continental spokeswoman.
Continental told analysts after the release of its first-half financial results that it needs to trim tire operating costs significantly in North America in order to get back in the black and set the stage for needed growth. CTNA could be $100 million or more in the red this year—after reporting a $103 million operating loss last year—before reaching break even in 2005, according to information from Morgan Stanley International & Co. Ltd.
Conti management told analysts it would have to budget between $56 million and $111 million to cover a plant closing, should the company determine it can't cut costs sufficiently in other ways, according to Nicholas Hirth at Morgan Stanley's European research unit. “Operational break even is contingent on getting union cooperation on costs or choosing the alternative option of more radical restructuring,” Mr. Hirth wrote in a research report.
Conti employs 1,176 at its Mayfield plant, which turns out about 14,000 passenger and light truck tires daily, and 1,308 at Charlotte, which produces nearly 19,000 passenger and light truck tires a day. The company's non-union Mount Vernon, Ill., car and truck tire plant has 1,157 employees and produces 28,000 units per day.
Conti's agreement at Mayfield and Charlotte with the United Steelworkers Union of America (USWA) is a six-year deal signed in late 1999, with a mid-term “re-opener” option. At Mayfield, the re-opener is scheduled for Sept. 20, according to Terry Beane, president of USWA Local 665.
Continental declined to comment directly on the analysts' reports but earlier this year told employees the North American unit needs to reduce costs, optimize logistics, enhance efficiency in sales and improve the image of the Continental brand in order to get back into the black.
“North America…presents us with our greatest challenges,” said Martien de Louw, 56, CEO of Continental's passenger tire business unit, in the firm's employee newspaper earlier this year. “Our sales are too low, the costs much too high and the organization must be aligned better.
“The challenges in North America will require a great deal of attention,” Mr. de Louw said, “and deserve our highest priority.”
He also said Conti would divulge details throughout the course of 2003 for a new strategy to turn things around, and will benchmark progress on a monthly basis thereafter. That plan still is forthcoming.