Goodyear to cut costs up to $1 billion

Goodyear Tire & Rubber Co on Friday set plans to cut costs by up to $1 billion over the next three years, close plants and sell certain assets in a bid to counter high commodity prices and pension costs. Shares of Goodyear, the largest US tire maker, rose 6 percent in morning trading on the New York Stock Exchange.
The company said it would cut costs by $750 million to $1 billion over the next three years, taking cash charges of $150 million to $350 million for the restructuring.
"Our clear goal is to be competitively advantaged in the tire industry by 2008," Chief Executive Robert Keegan said at an investors meeting. "We realise the rising materials, health care costs and inherent cyclicality of sectors in the industry will continue to challenge us,"
Goodyear expects to cut high-cost manufacturing capacity by 8 percent to 12 percent to generate savings of about $100 million to $150 million per year. It did not say how many plants it would close or where they are located.
Improving plant safety and other factors could save $350 million to $450 million per year and sourcing tires, raw materials, indirect purchases and capital equipment from Asia could save $150 million to $200 million per year, it said.
"There is excess industry capacity and they're removing it," said Tim Ghriskey, chief investment officer of Solaris Asset Management. "Hopefully, this will encourage some of their competitors to do the same."
"It surprised me. I think there was a perception that the restructuring was winding down, but clearly this is a management that wants to keep driving that positive change," Ghriskey said.
After a rough 2002 and 2003, Goodyear has been working to turn around its business by focusing on products, dealer relations, cost-cutting and investments in more profitable areas of its business. That helped the Akron, Ohio-based company improve its North American operations in the last two years.
Goodyear reported a profit in 2004 after losses totalling more than $2 billion over the previous two years sparked an earlier cost cutting plan of plant closings, job cuts and debt reduction.
But raw material costs are increasing and the company is facing high pension obligations and debt levels, it said. Rising oil prices in particular have inflated the cost of synthetic rubber and of operating plants and shipping products. Steel prices and natural rubber costs are also up.
Goodyear has sold a resins business and an Indonesian rubber plantation. The sale of its North American farm tire business is pending. Earlier this week, Goodyear said it would consider selling its engineered products business.