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Do IT this week: Layering
Sales plunge leads to more layoffs, freeze in salaries
By Jim Mackinnon
Beacon Journal business writer
Published on Thursday, Feb 19, 2009
The global recession has taken a big whack in Akron: Goodyear Tire & Rubber Co. says it will cut nearly 5,000 jobs and freeze salaries to reduce costs by $700 million this year as tire sales have plunged.
The company on Wednesday reported it lost $330 million in the fourth quarter and lost $77 million for the year.
Goodyear did not say where, or when, it will cut jobs this year.
The company, which is Summit County's largest manufacturing employer, has about 3,000 workers at its Akron headquarters and had nearly 75,000 globally at the end of 2008.
This latest round of cost-cutting will not affect the company's, and Akron's, plans to build a new, local corporate headquarters, a company spokesman said.
Akron Mayor Don Plusquellic said he was told the headquarters project is still on but has been delayed because the private developers have not been able to get financing related to the global credit crunch. The city government is still proceeding with the public investment portion of the new Goodyear headquarters project, including possible federal stimulus money, he said.
Goodyear said it anticipates the tough global economy will continue to cause consumers to cut back on spending and also drive less, which reduces demand for new tires.
The job cuts that will take place this year come on top of 4,000 other reductions, or about 5 percent of the total global work force, that the company made in 2008, Goodyear Chairman and Chief Executive Officer Robert Keegan said in a conference call with analysts.
''These are truly extraordinary times that require extraordinary actions,'' he said.
Goodyear will freeze all sal
aries and merit raises worldwide and will implement steps to reduce costs that include shorter workweeks at its manufacturing plants, Keegan said. The company plans to cut 15 million to 25 million units of tire capacity in the next two years and will look to sell what it considers noncore assets. It also will reduce capital expenditures, including delaying plant expansions and improvements.
The company has raised its long-term savings target from $2 billion to $2.5 billion by the end of this year.
''We are preparing contingency plans beyond what I initially outlined,'' Keegan said.
Those plans would go into effect if market conditions continue to deteriorate, he said.
Tire sales fell 19 percent globally from a year ago, the company said.
With all of the bad news, Goodyear investors got a consolation prize of sorts: Shares rose 36 cents, or 6 percent, to $6.38 in Wednesday trading. That made Goodyear the seventh-best performing stock in the S&P 500 Index of large publicly traded companies. Shares are up 6.9 percent since Jan. 1 and are down 76.2 percent from a year ago.
Not a surprise to many
Wednesday's announcements likely didn't catch many people by surprise.
Goodyear executives at an analysts' conference on Feb. 3 said the company had been pummeled in the fourth quarter by a dramatic drop in tire sales coupled with much higher raw material prices. The company said it had slashed tire production and would make additional cost cuts but didn't provide specifics until Wednesday's earnings release.
Other tire makers have reported similar struggles.
Goodyear's fourth-quarter loss of $330 million compares to a profit of $52 million, or 23 cents per share, a year ago. The loss of $1.37 a share, including one-time charges, was greater than an analysts' consensus of a loss of $1.03 a share.
The company said fourth-quarter sales fell to $4.1 billion from $5.2 billion a year earlier.
''We are in the midst of very interesting times,'' Keegan said. ''Today's economic uncertainty, the new economic realities of the world and the implications for our industry and for Goodyear are extremely challenging, we know that. . . . We are now dealing with new economic realities.''
For example, miles driven in the United States declined for 13 consecutive months as of November, their most recent data show, Keegan said.
Even with the quarterly loss, the company brought in more money per tire in the fourth quarter than a year ago, Executive Vice President and Chief Financial Officer Darren Wells said.
In addition, Goodyear has solid liquidity and available credit, he said.
New products planned
Goodyear plans to continue launching new products, including the new Assurance Fuel Max passenger tire and a new high-end Wrangler off-road tire announced earlier this month. The company expects to introduce 50 new products globally this year.
Goodyear reported sales of $19.5 billion for 2008, down less than 1 percent from a record $19.6 billion in 2007. Tire volume for the year was down 8.5 percent from 2007.
The company's net loss of $77 million, or 32 cents a share, compares to a profit of $602 million, or $2.65 a share, in 2007. Goodyear has reported losses in two of the past four years. It lost $330 million in fiscal 2006, largely from costs associated with a nationwide strike by the United Steelworkers union.
The North American Tire division, Goodyear's largest unit, had a loss of $193 million for the fourth quarter of 2008, compared to a profit of $40 million for the fourth quarter in 2007. For the year, the division had a loss of $156 million, compared to a profit of $139 million in 2007.
The North American figures were ''a big disappointment,'' analyst Himanshu Patel at JPMorgan Chase & Co. told investors, according to a Bloomberg News report.
Demand for replacement tires in the U.S. fell an average of 13 percent in the last three months of 2008, said Rod Lache, a New York-based analyst at Deutsche Bank, in a Feb. 12 research note, according to Bloomberg News.
For the first three quarters of 2008, Goodyear's operating income was up 5 percent from the same period in 2007, Keegan said.
Tire market will recover
Historical data suggest that the tire market will recover as consumers will need to replace worn-out tires, he said.
''We know from the history that when there is a bounce back, it's likely to be a significant bounce back because there is pent-up demand,'' he said.
Keegan said the company is negotiating to reduce staffing levels at a Latin America plant by 400 people. In December, Steelworkers at a plant in Buffalo agreed to a plan to reduce staffing there by 150. And today, Steelworkers will vote on a plan to reduce the work force in Danville, Va., by 400 people, Keegan said.
Plusquellic said he did not know how Akron will be impacted by any local Goodyear job losses.
He issued a statement saying his thoughts are with the employees who face the loss of their jobs.
''This global recession is impacting families most directly, particularly where the breadwinner loses employment, '' he said. ''I appreciate Goodyear's efforts to remain a healthy company. Nothing in their announcement today lessens their commitment to Akron. It would not be realistic to believe that the city of Akron won't be impacted as the global economy worsens — whether it's layoffs at Goodyear, or other companies. We will continue to watch our city budget and take appropriate action, so that we can better be prepared for the effects of the current international economic downturn.''
Beacon Journal staff writer Katie Byard contributed to this story. Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
The global recession has taken a big whack in Akron: Goodyear Tire & Rubber Co. says it will cut nearly 5,000 jobs and freeze salaries to reduce costs by $700 million this year as tire sales have plunged.
Get the full article here.
Comments
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Akron, OH
Posted 08:34 AM, 02/19/2009
"Akron Mayor Don Plusquellic said he was told the headquarters project is still on but has been delayed because the private developers have not been able to get financing related to the global credit crunch. The city government is still proceeding with the public investment portion of the new Goodyear headquarters project, including possible federal stimulus money, he said."
Why do they need the new building if they are laying off so many people? If sales are down that would mean production is down too, correct? Hello! Put the project on hold or scrap it until the economy turns around. I've had to forego alot of things in this economy - why shouldn't they? And of course the banks aren't lending! They're hoarding the bailout money they were given - no one can get a loan.
There are so many projects in the Summit County area that need the money that has been earmarked for the Goodyear project. Communities are being told there's no money to give for this project or that because it's all going to the Goodyear project. That's BS.
Posted 09:50 AM, 02/19/2009
cut those exec bonuses and perks... theres another 20 million.
Akron, OH
Posted 10:55 AM, 02/19/2009
Nice. The projects on hold, and the city hall hero is goin' to spend our money anyway.
Any-buddy notice that he intends to use any bailout money he gets on the project?? He doesn't have the money, yet intends to continue on with the project anyway.
Fiscal mismanagement at it's best.
Tallmadge, Oh
Posted 03:20 PM, 02/19/2009
Goodyear - which once was the heart of Akron - should be embarrassed of itself now. They have continually neglected there retirees and nickle-dimed their benefits until very little is left. They hammer their current employees and drive them away with their disloyalty to the employee. All this hurts Akron and the surrounding area - the entire state! But at least they will have a nice building, relatively empty, but nice. . . .to the tune of $50 million. Nice going Goodyear. Perhaps a more fitting name at this point would be BadDecade!! Ha
Akron, OH
Posted 05:24 PM, 02/19/2009
Traditionalist,
Your post really shows the generational shift. From my standpoint (younger generation), why should they have to take care of their retirees? GM, Ford, Chrysler and countless others are choking on their retiree costs.
Fairlawn, Oh
Posted 07:33 PM, 02/19/2009
@Beta
Mismanagement you're being too kind! Mismanagement is what got Madoff some attention, this is much more blatant that mismanagement. Everyone else is cancelling or delauying but not our city. You get what you ask for and we keep getting the same old thing, I'll be nice mismanagement.
We need new, fresh ideas and they are not coming from this administration.
Posted 08:25 PM, 02/19/2009
CEO Keegan came to Goodyear, sold off the best parts of the company, rode a wave of prosperity for trucks and SUV's, pocketed the proceeds and has the company now broke and ready to go bankrupt - and this is a $20M bonus guy.? The company deserves to go BK after allowing that.
