Goodyear Tyre & Rubber Co will have a hard time reaching its cost-cutting goal of as much as $US1.5 billion unless the company closes more factories, a Deutsche Bank analyst told Bloomberg News.
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According to the news agency, a union summary of a tentative three-year labour contract said that the agreement includes shutting only the Huntsville, Alabama, plant among the 14 Goodyear US factories represented by the United Steelworkers of America.
“We estimate that closing one plant will only save the company $75 million and will fall short of fixing Goodyear’s over-capacity problems,” analyst Rod Lache wrote in a report cited by Bloomberg News – he estimated that the Akron, Ohio-based company’s cost-reduction efforts announced so far total about $600 million a year.
Bloomberg noted that Goodyear said in April that it would cut costs by between $1 billion and $1.5 billion by the end of 2005, trimming expenses after losses totalling $1.31 billion in the past two years and declining sales in the US. Goodyear, which has about 92,000 employees, recently said it would eliminate 500 more non-union jobs in North America, following 700 salaried position cuts starting in January.
The union, which represents about 16,000 active Goodyear workers at the 14 US factories and another 3,000 on indefinite layoff, in its summary said Goodyear agreed to protect 85% of jobs at 12 of the plants, the report said, adding that the Huntsville plant, with about 1,100 union workers, will close and a Tyler, Texas, factory must meet certain goals to stay open.
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By GlobalData
In exchange, union members would pay higher out-of-pocket costs for health care, the summary reportedly said, adding that union members will finish voting on the contract in September.
The summary, obtained by Bloomberg News, doesn’t mention any wage increase and describes an improved profit-sharing plan and a union agreement to defer cost-of-living adjustments until early 2004.
Bloomberg News said the union summary said it agreed to study ways to boost productivity, including new types of job assignments at factories and, to help give such measures time to work, the union said it also won a commitment from Goodyear to sell $250 million in debt and $75 million worth of stock by the end of this year.
According to the news agency, Lache’s report said closing one plant would increase the rate at which Goodyear’s North American plants are used to 87% from 81% now.
