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March 26, 2003

COMMENT: Goodyear: fighting to stay on the road

Goodyear has elected to sell off its chemicals business in order to increase its financial security. Despite talks and a sell-off plan, Goodyear's shares are at an all time low and the woes of the company are far from over. Goodyear, the world's largest tyre manufacturer, is holding extensive talks with creditors and is considering the sale of its chemical business, with the aim of staving off possible financial meltdown.

By bcusack

Goodyear has elected to sell off its chemicals business in order to increase its financial security. Despite talks and a sell-off plan, Goodyear’s shares are at an all time low and the woes of the company are far from over.

Goodyear, the world’s largest tyre manufacturer, is holding extensive talks with creditors and is considering the sale of its chemical business, with the aim of staving off possible financial meltdown.

The sale of the unit, which brings in $US750 million worth of revenues per year, employs 1,400 people and manufactures resins, polymers and latex compounds, is to be supervised by Credit Suisse First Boston. It is a dramatic step for Goodyear, which has suffered from the heavy fiscal burdens of rising raw material costs and pension liabilities.

The company recently took a $1.1 billion non-cash charge for an accounting change and is reducing its equity for unfounded pension liabilities by $1.3 billion. These moves initiated creditor concerns due to their effective decrease of Goodyear’s net worth.

In addition, the company has suffered from a lack of sales growth, which some have seen as surprising given the ample opportunities for new market capture. This was provided by the high profile problems suffered by rival firm Bridgestone after the mass recall of its Firestone tyre products in 2001.

In retrospect, Goodyear failed to capitalise on this opportunity for gain at the expense of its rival, suffering a $203 million loss that year and being forced to slash its shareholder dividends for the first time in 70 years.

In an effort to regain ground, the company is in talks with 35 creditor banks with the aim of restructuring loan agreements and streamlining the cost of its debt. Some hope has come with the recent extension of a waiver on a $500 million contribution to the company’s pension plan. But the woes of Goodyear are far from over; with its shares at an all time low and a major restructuring plan expected after negotiations with creditors have concluded.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2003 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.

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