Sometimes tire company management and workers seemingly can do everything and things still don't work out.
That's what happened at Bridgestone/Firestone's tire plant in Oklahoma City, according to Steve Brooks, BFS vice president of manufacturing operations. There the company invested tens of millions of dollars to convert production to larger, higher-margin products; management and the United Steelworkers (USW) local worked together to reduce injuries; and the changes led to the plant consistently making its ``ticket'' and hitting other target goals.
Yet the 37-year-old passenger and light truck tire plant is slated to close by year-end-though the USW still holds out hope it can save the facility-and the 1,400 jobs there will be lost. BFS said the plant lost $40 million last year and was on pace for a $60 million shortfall this year.
``Some of that is the market is just going away,'' Mr. Brooks said. ``With raw material prices rising, it's impossible to recover those costs in the lower-end market.''
Rash of cutbacks
The BFS operation in Oklahoma City is by far not the only tire plant in the U.S. and Canada to face such a fate, especially among factories making mass market tires that have been hurt by an influx of low-cost imports. Among recent moves:
* Michelin North America Inc. (MNA) closed its unionized BFGoodrich plant in Kitchener, Ontario, and announced plans to reduce tire production and employment at its BFG factory in Opelika, Ala., by 30-40 percent by the beginning of the fourth quarter;
* Continental Tire North America Inc. (CTNA) stopped tire production at its headquarters plant in Charlotte, N.C., deciding instead to invest $70 million to $100 million at its non-union Mount Vernon, Ill., factory;
* Goodyear plans to cut production of private label tires by a third over the next year, a move that will result in a reduction in capacity of about 8 million units a year. That likely will impact one or more of the five plants in the U.S. and Canada where those tires are made, with some industry analysts projecting that Goodyear will close a plant; and
* Cooper Tire & Rubber Co., citing ``extraordinarily weak replacement tire demand in the North American market,'' reduced production in the second quarter and plans to close its Athens, Ga., facility, where it makes tread rubber and a small number of racing tires.
These cutbacks come against a backdrop of a tire market in the U.S. that is forecast to decline this year, according to a recently revised forecast by the Rubber Manufacturers Association (RMA). The RMA expects total tire shipments for auto and truck categories to drop 2.8 percent-or 8.9 million units-to about 312 million units for the year, before rebounding next year. (See shipments story on page 29.)
Ron Hoover, for one, isn't shy about where to assess blame for the cutbacks. The USW executive vice president and head of the union's Rubber/Plastics Industry Conference said the ``cutbacks are the result of the oil barons in the White House and gas over $3 a gallon.''
Those factors, coupled with low-cost imports, have made it difficult for the companies and his union, which represents workers at nearly all the facilities hit by shutdowns or cutbacks.
``In my opinion, the Chinese are dumping here,'' Mr. Hoover said. ``Even with the best relations, a company and union can't compete against government subsidies and currency manipulation.''
The USW leader said a ``good start would be to enforce our existing trade laws.''
Many of the cutback announcements came as the Steelworkers have been in master contract bargaining, but Mr. Hoover said that in itself haven't made these talks any tougher than usual. ``We have not been in a set of negotiations in a long time that haven't been difficult,'' he said.
The plants closed or destined to close this year will trim 3,600 workers from the USW rolls, dropping the number of USW-affiliated tire workers to about 30,000 by year-end from 34,185 at year-end 2005 and nearly 36,000 at year-end 2004. The number of non-union workers at tire plants in the U.S. and Canada has risen only slightly to 22,875 from 22,725 in 2004.
Deciding where to source
Several factors come into play when deciding where to produce tires, said BFS's Mr. Brooks. Being part of a company like Bridgestone, with plants around the world, opens up a lot of options.
``We look at where it makes most sense for Bridgestone as a global company,'' he said.
That means looking at the competitiveness of each facility, seeing what products are made there and deciding-based on economies of scale-whether it makes sense to make all of a product at one plant or at a variety of sites.
Bridgestone officials noted that not all of its recent cuts have come from the U.S. Its recent decision to shut a plant in Chile by year-end came about for reasons similar to those in Oklahoma City.
Hank Eisenga, plant manager at CTNA's Mount Vernon plant, said a tire company must be able to compete in any region; service the original equipment and replacement side of the business; and be able to meet customer needs on a continuous basis.
``You have to look at all costs and look at all the goods and services that are demanded in the marketplace, and ask yourself if you are putting yourself in a position to satisfy that,'' he said.
At Mount Vernon, Mr. Eisenga said Conti looked at the operation closely and saw that it had the necessary core competencies, a good level of efficiency and a dedicated work force. Early this year that led to a smaller capital investment followed by the increased $70 million to $100 million announcement this past month.
``They saw improvement over the years in this facility, and we've shown it is a strong operation we can expand upon,'' he said.
Goodyear officials wouldn't comment directly because of its ongoing union negotiations, but Jonathan Rich, president of the company's North American Tire unit, made it clear in remarks to negotiators during the first day of contract talks that the ultimate goal was only to win with customers.
``They don't care where a tire is made,'' Mr. Rich said. ``Americans have no loyalty to American-made products just because they are manufactured here. That lesson has been learned in other industries.''
Production flight not inevitable
The recent cutbacks notwithstanding, it's not likely that the near future will see an exodus of the majority of tire manufacturing from the U.S. and Canada.
The low-end products will continue to come increasingly from low-cost countries, but domestic operations still have some inherent advantages, according to Don Cook, director of global direct materials for ICG Commerce, a leading procurement services provider.
For example, while China may boast state-of-the-art facilities, workers there still can't match those in the U.S. ``The craftsmanship is missing,'' said Mr. Cook, whose company boasts Goodyear as one of its largest clients. ``They don't know how to make these products.''
Mr. Cook sees the current situation as the past repeating itself in some ways. ``Stuff has been getting offshored for years,'' he said. ``At one time, everything was to be made in Japan, and (now) it's not.''
Another way for manufacturing to prosper here is to continue concentrating on making top-line tires. ``Companies like Goodyear and Firestone have been going up the value chain to higher-end products,'' he said.
The USW's Mr. Hoover said the union has been emphasizing this point in its talks with tire makers, pushing for the investment to produce higher-margin tires. ``People will buy tires they are comfortable with, that they get good service on, and that their family is safe on,'' he said.
Keeping factories competitive
It is clear that any tire manufacturing that remains in the U.S. and Canada has to be competitive with operations around the globe.
That can be difficult when all the top players are suffering financially, as is the case in the tire industry, said Tony Clary, vice president and risk industry manager for Euler Hermes ACI, a global trade credit insurer. The firm just completed an industry risk analysis on the tire industry that doesn't paint a rosy picture of the sector's near-term prospects.
``If you look at the top five manufacturers, most are suffering from industry issues, rather than company-specific issues,'' Mr. Clary said.
``So in a company like Goodyear's case, where they have announced they are in a turnaround phase, it makes it difficult.''
Mr. Cook said two items are vital in keeping tire operations viable: a competitive labor contract and a continued focus on cutting costs. ``What we see and why we are so confident in U.S. industry is the relentless drive to reduce costs,'' he said. ``We don't see that anywhere else in the world. It's not just about jobs. It's about higher efficiency and lower costs.''
>From the company's standpoint, it's clear that business as usual no longer is acceptable.
In his comments, Mr. Rich said Goodyear and workers ``must see reality'' to win in North America. ``To be clear, we are not going to be lower-cost tire producers than competitors in China, Eastern Europe and Latin America. But we must be substantially lower than we are today.''
After workers at its three unionized BFGoodrich plants ratified the master contract in early August, Jim Micali, chairman and president of MNA, sent across this pointed message: ``We're committed to our manufacturing base in North America. But significant change has to occur to assure the competitiveness of our plants.
``Our facilities must be productive, efficient and profitable in order to remain viable for the long term. This new agreement for our BFGoodrich tire facilities is definitely another step in the right direction.''
Only three of Michelin's 19 plants in North America are union shops.
Mr. Hoover said the contract definitely is more competitive and puts Michelin in a position to expand the factories. He added that Goodyear and BFS will expect the same economic portions of the contract, ``and I will certainly expect the job security provisions.''
BFS's Mr. Brooks said it is important that both labor and management show ``basic business common sense.'' He noted that the union that represents workers at the firm's facility in Joliette, Quebec, recognized the needs of the business and the community and agreed to needed contract changes.
He also recalled growing up overseas in Morocco, where people used every means possible to survive. ``I think we need to get hungry as a country,'' Mr. Brooks said. ``The further you get from that reality and, when you're at the top of the heap as our country is, you're always the target.''
And throwing money at an operation isn't always the answer, especially when there is no related improvement in output or costs. ``As time changes, you have to move forward,'' Mr. Brooks said. ``The strategy to improve our facilities-all our facilities-is key to our success.''