Closure of plant plays into Goodyear's 'selective strategies'
Goodyear Tire & Rubber Co.’s plans to close its Union City, Tenn., tire manufacturing facility by the end of 2011 “is part of its strategy to reduce high-cost manufacturing capacity globally and provide cost effective high-value-added products that the market is demanding while continuing to make high quality products for its customers.”
The union plant was built by the company in 1968 and currently employs approximately 1,900 associates.
Richard Kramer, Goodyear's chairman and chief executive officer, said during a conference call to discuss its recent fourth quarter 2010 and year-end financial report (see “Goodyear announces financial results, plans to close plant”), "We don't think we're sacrificing volume in segments we're targeting."
Kramer said, "While we are committed to manufacturing in North America, all of our plants must be cost competitive and be able to demonstrate sustainable world-class productivity. That is not the case with this plant, and as a result, the market has moved beyond what the factory is able to build."
This closure, when complete, will eliminate approximately 12 million units of available capacity and is the final action in plans announced in 2009 to eliminate 15 million to 25 million units of high-cost capacity globally. This action is expected to provide annual cost savings of approximately $80 million.
Darren Wells, Goodyear's executive vice president and chief financial officer, said before the announced plant closure the company had a production capacity of 200 million units.
Goodyear produced approximately 170 million tires last year. Subtracting the 21 million capacity from announced plant closures, it leaves the company with a 179 million unit capacity. With growth in the range of 7 million tires, based on the company's expectations, Goodyear will be producing approximately 177 million tires this year, which is getting close to the company's total production capacity.
However, the company sees upsides in increased efficiencies by utilizing selective strategies to produce tires geared to its targeted market segments.
Goodyear's fourth quarter 2010 after-tax restructuring charge related to the Tennessee plant closure was approximately $160 million. Total after-tax restructuring, accelerated depreciation and asset write-off charges for this action are estimated to be approximately $270 million, of which approximately $140 million will be cash charges.