Continental Tire North America Inc. (CTNA) is cutting back car and light truck tire production at its Charlotte plant by about 30 percent to 17,000 to 18,000 units a day, citing high inventories and high manufacturing costs.
The cutback, to occur gradually throughout June, will affect 200 to 300 employees and will last at least through year-end, according to Mark Cieslikowski, president of United Steelworkers (USW) Union Local 850 at the Charlotte plant. CTNA said the duration of the cuts is ``indefinite.''
The inventory problem stems from lower new U.S. car sales, since the Charlotte plant is about 60-percent dedicated to original equipment tires, said Mr. Cieslikowski, who noted the plant's already high cost structure will increase even more now. That's because the plant will be more focused on replacement market sizes, which typically are shorter runs, requiring more mold changes and reducing efficiency.
``Unfortunately, this was our only option, as Charlotte is the highest cost plant for Continental Tire,'' said Rick Ledsinger, vice president, human resources for the Charlotte-based tire maker, adding that ``...it is critical that Continental Tire continues to make the changes necessary to be competitive in the U.S. tire market.''
The cutbacks do not bode well for the company's stated goal of achieving break-even in North America by year-end. Continental A.G. Chairman Manfred Wennemer recently told stock analysts in Europe that goal ``will be difficult to achieve.''
CTNA said it will provide layoff benefits to hourly employees in accordance with its collective bargaining agreement with the USW; salaried employees will be provided layoff benefits ``in accordance with applicable company policies.''
The tire manufacturer last year wrote down $64 million in assets at the Charlotte facility to cover ``impairment'' costs related to property, plant and equipment-specifically the depreciation of older, two-piece molds.
These costs resulted in ``unsatisfactory results'' at the plant, the company said.
Mr. Cieslikowski said the company broke off negotiations about three weeks ago with the union regarding a mid-term re-opener to their six-year labor contract at the factory and told the union after announcing the layoffs it would be another two or three weeks before talks could begin again.
Mr. Cieslikowski said CTNA to date has not spelled out to the union what changes in the contract it would take to make the plant competitive.
The union's main complaint is that CTNA has not invested sufficiently in the plant while at the same time earmarking more than $300 million overseas-for a new plant complex in Brazil, modernizing plants in Malaysia and expanding capacity at a plant in Mexico-primarily to supply North American demand.
That investment plan, disclosed about a year ago, didn't include investing in the firm's U.S. factories. Since that time, CTNA phased out production at its Mayfield, Ky., plant after first cutting production.
Earlier this year stock analysts at Morgan Stanley said Conti executives stated they wouldn't rule out closing Charlotte if negotiations with the labor union there don't yield progress.
When asked directly about the possibility of closing the plant, Conti said in a prepared statement: ``We are constantly assessing the operations of all our manufacturing facilities.''