PITTSBURGH (Sept. 15, 2003)—With ratification of a new three-year master contract, union workers and Goodyear management can get on with the task at hand—returning the financially ailing tire maker to profitability.
Local 831 in Danville, Va., was the last local to complete voting, approving the contract by a 76-percent approval margin on Sept. 12. With that vote, 13 of 14 United Steelworkers of America (USWA) locals approved the contract.
Under union rules, a majority of the 14 locals covered under the agreement must ratify the master pact, and those locals must represent a majority of the total members covered by the pact.
Only Local 878 at the Union City, Tenn., plant had voted the pact down.
Unionized workers at 14 Goodyear tire and rubber plants in the U.S. will sacrifice a lot, based on an analysis of the contract's terms. Goodyear will host a conference call Sept. 22 to address the specifics of the contract.
The pact includes some difficult concessions for the workers, most notably the closing of the company's Goodyear-Dunlop passenger and light truck tire plant in Huntsville, Ala., where about 1,300 employees—including more than 1,000 USWA members—will be affected by the move.
The nearly 20,000 workers at 14 covered facilities also will get no general wage increases during the life of the contract, which will run through July 22, 2006. The date represents a common expiration for all unionized Goodyear, Kelly-Springfield and Goodyear Dunlop plants in the U.S., plus four non-master Canadian factories and an Ohio warehouse.
While the terms of the pact could save Goodyear up to $500 million in annual costs, analysts questioned whether the steps will be enough to put the company in a position to recover from a string of seven losing quarters out of the past 11.
The company has stated it wants to slash costs by $1 billion to $1.5 billion by 2005, including more than $900 million in labor costs during the life of the contract. The proposed agreement reduces “near-term financial stress” for Goodyear, according to analyst Stephen Girsky of Morgan Stanley Equity Research in New York.
In an Aug. 28 report, he estimated the annual cost savings from the agreement at $180 million to $420 million, with the one-year estimate near the low end of that range.
Jacqueline S. Weiss of Merrill Lynch said in a Sept. 2 report the agreement—plus the salaried job reductions, previous hourly layoffs and the possible closure of a distribution center in Lincoln, Neb.—could translate to about $500 million in annual savings. The contract appears to provide “meaningful cost savings” to the company, she said.
However, Ms. Weiss said the contract doesn't appear to go far enough toward reaching the company's savings goals. She said the pact could “tie Goodyear's hands” in some areas, including the ability to reduce production capacity and import tires to North America from abroad.
Mr. Girsky also said some of the provisions on plant closings, asset sales, refinancing and outsourcing could create conflict among the interests of the union, debt holders and equity holders.
The union members will receive quarterly cost-of-living allowance adjustments, according to a summary of the proposed agreement. COLA adjustments for July and October this year will be delayed until April 2006 to help defray the costs of lump-sum payments for retirees. Those adjustments will be in amounts of 23-25 cents per hour.
The pension benefit accrual also will be frozen for two years, the summary said. An increase in the pension multiplier to $55 per month per year of service from $50 would apply to anyone retiring May 1 of this year or later, but wouldn't take effect until Feb. 1, 2006.
Active and inactive employees, retirees and surviving spouses also must pay premiums out-of-pocket for health care and higher prices for prescription drugs.
Despite the loss of the Huntsville factory and a stagnant economic package, the USWA made some gains. Twelve of the 14 plants will be protected during the life of the contract—meaning they can't be shut down.
The Kelly-Springfield passenger tire facility in Tyler, Texas, will receive “partial” protection initially, and will be fully protected if certain undisclosed production goals are reached.
The agreement also stipulates:
* Protected plant staffing won't be reduced by more than 15 percent, based on Aug. 1, 2003, levels;
* Protected factories will get first consideration and preference for new products to be sold in North America;
* No products made at protected plants will be imported unless those plants are operating at full capacity; and
* No production will be transferred to non-USWA plants from protected facilities.
The union also will get a seat on Goodyear's board of directors, a move that, while symbolic, will give the USWA a chance to monitor business at the top, said David Meyer, associate professor of management at the University of Akron's College of Business Administration. “The union rep might have nothing to propose at the board level, but given the company's recent financial performance, it's a good position to have,” he said.
It will be the first time a union member has held a board seat in the tire and rubber industry in the U.S.
Goodyear also addressed the size of its management work force and debt restructuring.
The company agreed to cut salaried staff “by 115 percent of the percentage reduction of bargaining unit employees,” based on staffing at the end of last year, the summary said. Goodyear also will limit the ratio of non-bargaining unit employees to bargaining unit employees at tire plants to 1-to-6, progressing toward 1-to-7; and at Engineered Products plants to 1-to-4, progressing toward 1-to-5.
In a move not outlined in the contract language, Goodyear announced Aug. 28 it will eliminate about 500 salaried and non-bargaining unit jobs, primarily at facilities outside of Akron. Earlier in 2003, the company eliminated about 700 salaried positions, mostly at its Akron headquarters.
Goodyear agreed to attack its debt problems by raising near-term financing, refinancing its current bank facilities and remaining in compliance with its bank covenants. It must raise $250 million by selling debt securities and $75 million by selling its stock by Dec. 31, or the USWA has the right to strike, the summary said.
Goodyear also would be required to refinance about $1.3 billion from its bank facilities. If it fails to abide by certain stipulations concerning loan maturation, the union would be allowed to strike and each active member would receive $1,000 and each retiree $500.
Story compiled by Brad Dawson and Bruce Meyer, Crain News Service, and Bruce Davis, Tire Business staff.