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US: Goodyear eyes low-cost locations

By just-auto.com editorial team | 16 August 2007

Goodyear Tyre & Rubber Company has said it is planning major global investments to fuel growth and plans to repay additional debt, both made possible by the recent sale of its engineered products business and the company's successful equity offering.

Goodyear said it was considering potential new tyre factories in eastern Europe and Asia in addition to the company's previously announced intent to invest in existing tyre factories to increase high-value-added capacity by 40% globally and increase capacity in existing low-cost plants by 33%.

Together, these investments would drive the company toward its strategy of having 50% of its global capacity in low-cost countries by 2012.

The investment programme includes modernisation in North America of Goodyear's Fayetteville, North Carolina, and Gadsden, Alabama, tyre plants for increased high-value-added capacity, both supported with investment incentives by local and state governments.

"Consistent with what we have been telling investors, the successful completion of the sale of engineered products combined with our equity offering in May allows us to expand our future growth investments," said Goodyear chairman and chief executive officer Robert Keegan.

"We will continue to use a disciplined approach in allocating capital to high-return investments."

In addition, Keegan said Goodyear has given notice to its lenders that it will repay its $US300m third lien term loan on 16 August. The repayment will result in annualised interest expense savings of approximately $26m, of which about $10m will be realised in 2007. The secured loan matures in 2011.

The company's debt repayment plans also include the early repayment, in the first quarter of 2008, of $650m in secured notes that are due in 2011.

Keegan said these early repayments coupled with the company's $315m redemption of senior notes in June would save Goodyear more than $125m in annual interest expense.

Goodyear has also reported progress in its so-called four point cost savings plan. The company announced in April it now targets gross cost savings of $1.8bn to $2bn by the end of 2009.

By 30 June, 18 months into the plan, Goodyear said  it had achieved nearly $750m in cost savings against this target.

More than $500m of these savings were the result of continuous improvement initiatives. While announced savings from eliminating high-cost manufacturing total $135m, only $35m of this was reflected in results by 30 June.

Sourcing raw materials, equipment and products from Asia and other low-cost countries has resulted in savings of $60m and selling, administrative and general expense (SAG) savings-to-date total more than $150m.

"We remain on track to achieve our targeted savings.  While some of these savings are offset by currently elevated inflation levels in areas such as energy and some manufacturing inefficiencies in advance of footprint reductions, we are confident structural savings will be achieved on a net basis, particularly in North America," Keegan said.