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DETROIT (MarketWatch) -- Goodyear Tire & Rubber Co. (GT) said Monday that it
would close a unionized plant in Tyler, Texas, in the midst of a three-week-old
strike by the United Steelworkers union, a move that underscores the deep divisions
between the sides.
The United Steelworkers, in a statement, called the move "counterproductive" and "a
further example of the management's foolish notion that believes it can shrink a
company to prosperity."
The Tyler plant is one of two factories Goodyear reportedly wanted the right to
close in negotiations with the union. The issue of plant closings and job security is
one of the factors that led to the Oct. 5 strike by the USW.
The union has said it won't accept plant closings. The strike halted work at 16
Goodyear plants in the U.S. and Canada that employ about 15,000.
The closing will eliminate about 1,100 jobs and create annual savings of about $50
million after tax, Goodyear said. It also will result in a restructuring charge of
between $155 million and $165 million.
Goodyear spokesman Ed Markey said the closure is due to the company's exit earlier
this year of certain segments of the private label tire business.
Though the plant is unionized, Markey said the contract with the USW expired. There
are no formal talks scheduled, but Markey said Goodyear continues to have a
"dialogue" with the union.
But a protracted battle is possible. On Oct. 13, the company announced it had
borrowed $975 million - "additional cash in the unlikely event of a prolonged
strike," Chief Financial Officer Richard Kramer said in a statement.
Analysts and investors have said Goodyear needs to get a new contract that allows it
reduce capacity. However, a prolonged strike could lead to steep losses just as the
tire maker's finances are starting to bounce back.
The union said Monday that Goodyear is ignoring the concessions the USW made in
2003, which included a plant closing.
"Now they seem committed to stripping away health care benefits from those who made
the turnaround possible and to further close plants and abandon the business," USW
Vice President Tom Conway said in a statement.
Goodyear - facing high raw material costs, foreign competition and lower production
from some auto makers - has said it needs a more competitive labor agreement.
JP Morgan analyst Himanshu Patel, in a Monday research note, said the union likely
won't have any recourse to fight the Tyler closure other than prolonging the strike.
"With what we estimate is two months of inventory, and additional liquidity provided
by the just-drawn down revolver, we continue to believe (Goodyear) has more staying
power during this strike than the union," he wrote.
Some analysts have said Goodyear needs to close two North American plants and
Monday's announcement "suggests that the odds of achieving two plant closings instead
of just one has risen," Patel wrote.
But the closure will get Goodyear close to its 2008 capacity reduction goal, which
means it's "possible Goodyear will not shut down another U.S. plant in the near-term
and instead may look for savings in the form of lower wages, fewer job
classifications and reduced legacy costs," wrote Merrill Lynch analyst John Murphy.
Goodyear has used production at nonunion plants, existing inventory and tires made
at its overseas plants to supply its customers. Slow replacement tire sales this year
led to high inventories.
The union's statement Monday also questioned the quality of Goodyear tires made by
temporary workers.
"The company's decision to bring in unskilled and untrained temporary workers from
the street is another weak attempt to convince our customers and investors that
everything is all right," Conway said in a statement.
Markey said Goodyear has "well-established" quality control systems.
"We have well-established, long-standing systems in place to ensure that each
Goodyear tire meets our standards, especially as it relates to quality," he said.
"Those systems, as well as the salaried quality control and technical personnel who
oversee them, continue to operate as they did before."