AKRON (Sept. 22, 2003) — Goodyear expects its recently ratified labor agreement with the United Steelworkers of America (USWA) to yield more than $1 billion in cost savings over the pact's three-year life, laying the foundation for the financial and operating recovery of the firm's North American Tire unit, top Goodyear executives said.
In addition to the quantifiable cost savings, Goodyear is counting on additional returns from productivity gains that will result from increased operational flexibility, Robert J. Keegan, chairman and CEO, told financial analysts during a conference call Sept. 22, as well as savings from possible salaried head-count reductions or plant closings.
Calling the five-month negotiation process “complex and delicate,” Mr. Keegan said the agreement broke new ground on a variety of issues, including “unprecedented” containment of health care costs, no general wage increases and clearly defined cost-reduction and productivity improvement requirements at every plant.
The latter item – referred to as a “productivity tool kit” by Jonathan D. Rich, president of North American Tire – includes provisions for staffing reductions (no more than 15 percent from August 2003 staffing levels), redesign of the work layout, restructuring of work rules and productivity incentives.
“Implementing these actions at our Gadsden (Ala.) plant meant it went from one of our highest cost plants to one of our lowest,” Mr. Rich said.
The agreement also provides Goodyear with the continued ability to use its global manufacturing network to supply North America, Mr. Rich said. While the contract gives USWA-organized plants in North America precedence for tires designed for sale in North America, it also allows Goodyear to source those same tires overseas if the North American plants are operating at or above their August 2003 capacity levels.
This proviso applies to 12 of the firm's 14 unionized plants in the U.S. The Goodyear Dunlop plant in Huntsville, Ala., is scheduled to close by year-end, and the Kelly-Springfield plant in Tyler, Texas — which produces primarily the type and size of tire that would be made more efficiently overseas — must meet specific productivity targets to be accorded “protected status.” This means the targeted capacity at Tyler is only about 60 percent of the plant's listed capacity, since the factory was operating at that level in August.
Goodyear earlier this year stated it intended to more than double to about 10 million the number of tires it would import from overseas plants to complement its North American production capacity.
"This agreement gives us the ability to import tires we need to be competitive in markets currently served by Tyler,” Mr. Rich said, “and allows us to import as many tires as needed if we do not have the capacity in the U.S. There is no requirement to add capacity in the U.S. to offset these imports."
Regarding the U.S. factories, Mr. Rich said, “While there is not a fixed amount of capital expenditures earmarked for these factories in the contract, we intend to maintain their competitiveness and give them first consideration to manufacture products sold in North America."
In addition, Goodyear committed to improve its balance sheet further by raising at least $250 million of new debt financing and $75 million of new equity-related financing during the remainder of 2003.
It also agreed that by the fourth quarter of 2004, it would launch a refinancing of its U.S. term loan and revolving credit facilities due in April 2005 with loans or securities having a term of at least three years. Goodyear agreed that the union could strike if it does not meet these commitments, and it would pay each covered union employee $1,000 and each retiree $500 if it does not refinance two of its U.S. credit facilities.
If Goodyear does not remain in compliance with the principal financial covenants in its U.S. revolving credit facility, it has agreed to seek private equity investment.
"Timely refinancing of our bank debt has always been a key element of our business plan," Mr. Keegan said.
As part of the new company-union partnership, Goodyear gave the USWA the right to nominate an individual for a seat on its board of directors, agreed to remain neutral should the union attempt to organize a non-union facility and said it would require that a buyer of any of its plants negotiate a labor agreement as a precondition of the sale.
The 14 plants and their workers covered by the agreement are: Akron, St. Marys and Marysville in Ohio; Lincoln, Neb.; Sun Prairie, Wis.; Topeka, Kan.; Danville, Va.; Union City, Tenn.; Gadsden, Ala.; Freeport, Ill.; Tyler, Texas; Fayetteville, N.C.; Huntsville, Ala.; and Tonawanda, N.Y.