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KeyBanc downgrades Goodyear stock

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On the heels of Goodyear Tire & Rubber Co.'s net losses of $330 million for the fourth quarter of 2008 and $77 million for the year, KeyBanc Capital Markets Managing Director Saul Ludwig has lowered his rating for the company's stock.

Ludwig dropped the rating from "Hold" to "Underweight." He lists the following challenges Goodyear faces this year:

* lower volume globally,

* unabsorbed overhead,

* raw material costs that will substantially exceed price/mix in the first half of 2009 ("but should turn positive in 2H09"),

* significantly higher pension costs,

* a foreign exchange rate that is working against the company, and

* disruptions associated with capacity reductions.

"Liquidity is good for 2009, but additional financing is required by 2010," he says. "If possible, Goodyear may try to access capital markets before the end of 2009."

According to Ludwig, Goodyear's announced plan to take out 15 million to 25 million units of production capacity over the next two years "could involve closing three -- or more -- plants and cost in excess of $400 million." However, the financial benefits of these closings would not help Goodyear's bottom line until the second half of 2010.

"Additionally, Goodyear plans an additional $700 million in cost reduction initiatives for 2009 alone. That involves job reductions totaling 5,000, but Goodyear has not indicated what percent would be overhead reductions versus plant personnel.

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