Both the United Steelworkers (USW) and Goodyear have drawn their lines distinctly in the sand in the now weeks-old strike, but several questions-from how long it could last to how much it could cost both sides-remain elusive.
About 15,000 USW workers at 16 North American plants are participating in the strike, which began Oct. 5. The USW and Goodyear have been far apart on many issues since contract talks began in June, particularly job and plant protection and retiree health care. The company is seeking to cut labor and health care costs, remain globally competitive and fight the cost disadvantages of imports. On the other hand, the union wants to avoid the closure of one or more North American tire plants, preserve jobs and safeguard retiree health care benefits.
For Goodyear, the strike brings the risk of lost revenue, profits and even market share, as roughly 63 percent of its U.S. and Canadian tire production is at stake. For the union members, each day on the picket line means lost wages and benefits they may never recover, let alone their future strength if the company can hold out longer.
Saul Ludwig, an analyst at KeyBanc Capital Markets in Cleveland, estimates Goodyear will lose $2 million a day in profits because of the strike. ``The longer the strike lasts, the bigger that number becomes,'' he told Tire Business. How big, he said, is a sliding scale that's up for grabs.
Another analyst, John Murphy of Merrill Lynch, estimates Goodyear will lose about $38 million in revenue for each day its plants are affected. ``Given the magnitude of the daily losses, we believe almost any amount of time will be detrimental for Goodyear's profitability,'' he wrote to investors.
In for the long haul?
Goodyear seems to be preparing for a drawn-out battle.
The company on Oct. 13 said it borrowed nearly $1 billion under an existing revolving credit facility since the start of the strike. The Akron-based tire maker borrowed about $300 million the day the strike began under its $1.5 billion U.S. First Lien Credit facility, the company said, and followed that up Oct. 13 by borrowing another $675 million, nearly tapping the reserves of the facility.
Goodyear had about $1.3 billion in cash and cash equivalents and about $1.6 billion in available credit lines as the strike commenced, said Richard Kramer, Goodyear executive vice president and chief financial officer. ``This action provides additional cash in the unlikely event of a prolonged strike,'' he said.
Rod Lache, a research analyst with Deutsche Bank Securities Inc., said he sees three reasons why Goodyear would draw on its available credit at this point: The company is sending a message to the USW that it can ``weather a long fight;'' U.S. cash could decline significantly in the fourth quarter or future periods; and Goodyear wants to avoid the risk of not being able to tap its facilities if it needs them.
A prolonged strike is more likely with Goodyear's move to boost its cash position, Mr. Murphy said in an Oct. 13 report. The drawdown also leads him to believe negotiations are not going as well as Goodyear anticipated at the start of the strike, he said.
A USW spokesman confirmed that no formal talks have taken place and none is scheduled at this time. He also condemned Goodyear's plan to borrow money to prepare for a long labor dispute.
The length of the strike is ``entirely up to Goodyear,'' he said, emphasizing the walkout will end as soon as the company offers the USW a fair and equitable contract. ``If they want to waste $1 billion of the shareholders' money before they do it, that is sad, but our need for a fair and equitable contract will not change,'' he added.
On Oct. 16, Standard & Poor's Ratings Services placed Goodyear's credit ratings on CreditWatch with negative implications because of the strike. S&P noted the ``potential for business disruptions and earnings pressures that could result'' from the walkout. Goodyear has total debt of about $7 billion, S&P said.
``Goodyear currently is able to meet most customer requirements through existing inventory, but as inventory is depleted, the company would experience shortages that could damage customer relationships,'' S&P said.
S&P analyst Martin King said Goodyear's credit ratings could suffer if the strike appears likely to strain the company's credit profile. Since the strike, Goodyear's share price has remained fairly stable, hovering between $14.24 and $14.73 by Oct. 18.
Weathering the strike
Himanshu Patel of JPMorgan Securities Inc. estimated the nearly $1 billion borrowed would provide the company with six to seven months of cash cushion during the strike. So far, Goodyear is shipping product to customers from existing inventory, operating non-affected tire plants as usual and operating affected plants with salaried employees in addition to importing supply from international operations.
A Goodyear spokesman said the tire maker's two non-union tire factories in North America-in Lawton, Okla., and Napanee, Ontario-are running ``full out.'' Two other tire plants in Canada that are unionized but not included in the disputed master contract also are running. Combined, the four plants have a daily capacity of about 123,000 units. The tire factories involved in the strike represent an estimated daily capacity of 206,000 tires.
Mr. Ludwig suggested that salaried employees would be able to produce only a small piece of the affected production. ``If you've got 15,000 workers out, you can't replace 15,000 workers,'' he said.
He added that imports from Goodyear's operations overseas as well as the contributions from the plants still running will make a difference. Where that production goes, however, will have to be prioritized to ``where their needs are the greatest.''
In addition to the striking employees, Goodyear also temporarily laid off about 300 workers at its Asheboro, N.C., steel tire cord facility because the firm has enough wire on hand to meet its current production needs, a spokesman said. Another 43 union workers at Goodyear's warehouse in Topeka, Kan., also joined the strike though they're not covered by the master contract.
In an Oct. 13 letter to employees, Jon Rich, president of Goodyear's North American Tire business unit, praised the salaried work force-many of whom are being trained to build tires and perform other jobs-and who have volunteered to travel to other sites to make sure customers' needs are met. He said the strike wouldn't change the systems and procedures in place to provide quality products and they would continue to operate fully during the work stoppage.
Mr. Rich added that the company remains hopeful that the two sides will reach an agreement. ``Because when customers buy our tires and engineered products, they won't really care who has made them, as long as they come from Goodyear. That's why this negotiation is not about labor vs. management, the bargaining is only about Goodyear vs. the competition.''
The USW spokesman said the company should realize the problems training its salaried employees to build tires might create-a similar scenario at Bridgestone/Firestone led to the mammoth 6.5 million tire recall in 2000, he claimed. The USW also has safety concerns for the inexperienced people being asked to perform the jobs in the unionized plants, he said.
Bruce Meyer, Crain News Service, contributed to this report.