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Goodyear: Contract agreement 'is critical to drive our turnaround'

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Goodyear Tire & Rubber Co. was mum on the details of its tentative agreement with the United Steelworkers of America (USWA) while union members voted on it. Now that ratification is complete, Goodyear is ready to open up about what it gained and what it lost.

The USWA released a contract summary on Sept. 15 ("mtdealer.com exclusive: Union reveals details of Goodyear contract"). In its own words from an official release, here's what Goodyear officials had to say.

The Goodyear Tire & Rubber Company

announced today that its new labor contract with the United Steelworkers of America meets the operational flexibility and cost-savings goals established prior to the negotiations.

"Our goal for these negotiations was to achieve what some thought was impossible: a fair agreement that contributed approximately $1 billion in cost savings and cost avoidance over its three-year term without a work stoppage,"

said Robert J. Keegan, Goodyear chairman and chief executive officer.

"Because of the many complex and delicate issues involved, this process took a considerable amount of time. But our patience and determination has been rewarded with a contract that is critical to drive our turnaround in North America."

The three-year pact covering workers at 14 tire and engineered products factories in the United States gives Goodyear the ability to eliminate

high-cost manufacturing capacity, contain healthcare costs, source product globally

and improve productivity. It also provides a framework for ongoing cooperation between the company and the USWA.

Keegan said the agreement breaks new ground in several important areas including:

* containment and sharing of healthcare and prescription drug costs;

* no increase in the company's retiree benefit liability caps;

* a two year moratorium on pension service credit;

* no general wage increases;

* clearly defined cost reduction and productivity improvement requirements at every plant; and,

* cooperation and consultation between Goodyear and the USWA on a broad range of issues, including debt reduction.

The ability to reduce high-cost manufacturing capacity in North America and leverage Goodyear's global sourcing capabilities was a significant accomplishment, according to Keegan.

Acknowledging that the refinancing of the company's bank debt in April was an important first step in the turnaround effort, Goodyear committed to further improve its balance sheet by raising at least $250 million of new

debt financing and $75 million of new equity-related financing during 2003. It also agreed that by the fourth quarter of 2004, it would launch a refinancing of its U.S. term loan and revolving credit facilities due in April 2005 with loans or securities having a term of at least three years.

Goodyear agreed that the union can strike if it does not meet these commitments, and that

it would pay each covered union employee and retiree certain payments if it does not refinance two of its U.S. credit facilities.

If Goodyear does not remain in compliance with the principal financial covenants in its U.S. revolving credit facility it has agreed to seek private equity investment.

"Timely refinancing of our bank debt has always been a key element of our business plan," said Keegan.

As part of the new company-union partnership, Goodyear gave the USWA the right to nominate an individual for a seat on its board of directors,

agreed to remain neutral should the union attempt to organize a non-union facility and said it will require that a buyer of any of its plants negotiate a labor agreement as a precondition of the sale.

Regarding Goodyear's ability to reduce high-cost manufacturing capacity, 12 of its 14 USWA-represented plants are "protected" for the term of the contract, meaning the company will not close them. The Goodyear-Dunlop tire plant in Huntsville, Ala., is not protected, giving the company the option to close it.

The company's Kelly-Springfield tire plant in Tyler, Texas, was granted "partial protected" status, with Goodyear agreeing to keep it open and to work with the USWA on a plan to improve its financial performance. As part of this

process, Goodyear can reduce employment at Tyler to 60% of its August 2003 level.

Additionally, Goodyear has the option to reduce the hourly workforce by 15% of August 2003 levels at the 12 "protected" plants. An arbitration process has been established to ensure the need for workforce reductions

and to verify their effectiveness.

"While there is not a fixed amount of capital expenditures earmarked for these factories in the contract, we intend to maintain their

competitiveness and give them first consideration to manufacture products sold in North America," said Jonathan D. Rich, president of Goodyear's North American Tire business.

"Using our global manufacturing capability to improve profitability in North America was another important goal," he said. "This agreement gives us the ability to import tires we need to be competitive in markets currently

served by Tyler and allows us to import as many tires as needed if we do not have the capacity in the U.S.

"There is no requirement to add capacity in

the U.S. to offset these imports."

The union agreed to clearly defined cost-reduction commitments for each factory, Rich said. These may be achieved through further employment reductions, work redesign, work rule changes, incentives or other methods.

North American Tire is already reducing salaried staffing in the factories and offices to add to this effort.

"This is the sort of cooperative effort that has turned around our Gadsden, Ala., tire plant and will dramatically improve the long-term

efficiency, cost and work flow in our other operations," Rich said.

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