Union ratifies labor agreement with Michelin; trades wage reductions for job security

Aug. 6, 2006

The tentative labor agreement between Michelin North America Inc. and the United Steelworkers (USW) involving three domestic BFGoodrich Tire Manufacturing plants has been ratified.

The new agreement, which covers 4,000 union members, calls for a 20% reduction in the wage rate structure and increases in employee health care cost-sharing at the BFGoodrich plants in Tuscaloosa and Opelika, Ala., and Fort Wayne, Ind. The USW says 61% of the membership voted to accept the tentative agreement.

Significantly reducing Michelin's costs over the life of the three-year contract was "absolutely critical to the long-term viability of these plants," according to Michelin.

"The North American tire market is one of the most competitive in the world, with increasing price pressure from vehicle manufacturers, unprecedented raw material and energy costs, and a surge of replacement market tires from competitors in lower-cost countries," says Jim Micali, chairman and president of Michelin North America. "Getting our labor costs in line with market rates and limiting our long-term liabilities are crucial to securing the future viability of our North American facilities."

Cost benefits to Michelin include the following:

* BFGoodrich tire facilities will adopt a simplified, five-level job hierarchy with a 20% lower wage rate structure.

* Union employees will increase their cost sharing in healthcare coverage that will result in savings of approximately $5 million annually.

* As part of a new wage-progression program, new employees will receive substantially lower hourly pay.

* The contract allows for greater use of contingent staffing in full-time, rotating shifts.

* Retiree healthcare remains capped at $5,000 annually.

In return for these cost reduction commitments, Michelin will not close any of the three plants during the contract term beyond those already announced and negotiated. There also will be no "significant employee reductions."

The company also has agreed to:

* a modest pension increase consistent with inflation (an improved pension multiplier of $57 per month -- up from $54 -- per year of service for retirements after July 23, 2006).

* a contribution of $10 million to a trust managed by a third party to assist BFGoodrich retirees.

* capital investments of $100 million in the three facilities through 2009.

"There can be no more 'business as usual' in this climate of escalating costs and increased competition," says Micali. "We're committed to our manufacturing base in North America.

"But significant change has to occur to assure the competitiveness of our plants. Our facilities must be productive, efficient and profitable in order to remain viable for the long term. This new agreement for our BFGoodrich tire facilities is definitely another step in the right direction."

"This contract protects wages for our existing employees, preserves Cost of Living Adjustment (COLA) payments and maintains excellent health care benefits for both our active and retired members," says USW-BFGoodrich Coordinator Larry Jackson. "We also negotiated a 'buyout' package for more than 400 workers that will provide our older members with additional options, while enhancing job security protections for the younger ones."

Earlier this year, Michelin closed its BFGoodrich Tire Manufacturing plant in Ontario, Canada, and announced planned layoffs of 30% to 40% of the work force at its Opelika facility. Michelin North America (MNA) says these actions were driven by significant overcapacity in the mass market tire segment in North America.

Groupe Michelin, MNA's parent company, says that in less than three years, it has absorbed more than 1 billion euros in additional raw material costs, including a 20% increase in the first half of 2006 versus the same period a year ago. Increased energy and transportation costs in the first half of 2006 generated an additional 62 million euros in cost for the company.

MNA was designated last month as the target company in establishing an agreement in the tire industry. Master contracts also are being negotiated at Goodyear Tire & Rubber Co. and Bridgestone Firestone North American Tire LLC.

The three BFGoodrich consumer tire plants have the capacity to produce 73,000 tires a day, according to Modern Tire Dealer's 2006 Facts Issue.