Keegan: New contract a ´powerful milestone´ for Goodyear

Akron, Ohio -- Reduced legacy costs and capacity and increased productivity were the major benefits for Goodyear in reaching accord with the United Steelworkers after a nearly three-month strike, company officials said last week.

Robert Keegan, Goodyear chairman and CEO, said the new master contract represented a "powerful milestone" for the company. He and other Goodyear officials discussed the strike´s impact during an investor conference call on 9 Jan.

The combined savings in the areas of productivity, capacity and legacy costs are projected to total about $610 million for the life of the contract and $300 million annually, Goodyear said.

The legacy cost savings are driven by the company´s commitment to a Volunteer Employees´ Beneficiary Association trust to manage retiree health care benefits. Under the plan, agreed to in the contract, Goodyear will contribute $1000 million to the trust and effectively end its responsibility for USW retiree health care.

The VEBA contribution will help eliminate about one-half of the company´s projected pension obligation, said Richard Kramer, Goodyear executive vice president and chief financial officer, from $2600 million at the end of 2005 to $1300 million at the end of 2007. The move also will save $110 million annually in retirement benefit expenses and improve cash flow by $145 million per year.

Reduction in capacity is slated to save $75 million during the length of the contract. The shutdown of the Tyler, Texas, tyre plant after 2007 is slated to save $50 million annually, and the combined annual capacity reductions in Tyler and in Valleyfield, Quebec, will total about 16 million units.

Including the shuttering of the Goodyear Dunlop plant in Huntsville, Alabama, in 2003, the company will have improved its efficiency by cutting 20 percent of North American capacity since that time, Kramer said.

One related project put on hold by the strike was the potential sale of the company´s Engineered Products business -- which includes four union-represented plants, Keegan said. Several suitors have expressed interest in that unit, and he expects the company to move ahead in that regard and possibly announce a transaction sometime in the first half of 2007.

More than 600 jobs at Engineered Products plants could be reduced via buyouts, Kramer said. The company already announced Jan. 4 it would offer buyouts to more than 400 at the USW plants within that unit.

From Rubber & Plastics News (A Crain publication)