Goodyear cut costs to spark recovery

Investors cheer the tire maker's plan

Goodyear Tire and Rubber Co. may be controversial among the politicians on Jones Street, but Wall Street investors are mostly bullish on the company and its prospects.

"We're a long way from where we were at the trough, which was 2003," said analyst Kirk Ludtke of CRT Capital Group, who recommends buying Goodyear stock. "There were serious bankruptcy concerns then. I don't think anybody is thinking that way now. It's a pretty dramatic turnaround."

But what has cheered analysts may not be what politicians and community leaders want to hear: cost-cutting, plant closings and a new union contract that significantly lowered starting pay. At the same time, however, concerns that the Fayetteville plant would be shut down motivated the state to offer incentives.

For the past several weeks, legislators and the governor's office have been debating an investment in the future of Goodyear and the state's other large tire maker, Bridgestone Firestone. The debate highlights the competitive nature of the tire industry.

The legislature had approved a $40 million incentive package for Goodyear's Fayetteville plant. The money was conditioned on the company upgrading the factory, which employs 2,750.

But Bridgestone Firestone, which employs 2,200 permanent and contract workers in Wilson County, cried foul. Gov. Mike Easley, saying in part that the Goodyear legislation was not fair, put forth his own proposal and vetoed the bill. On Tuesday, the two sides reached a $60 million compromise that helps both plants.

Bridgestone spokesman Dan McDonald told the Wilson Daily Times recently that the company wanted Easley to either veto incentives for Goodyear or offer Bridgestone a similar deal. Anything else "puts us at a competitive advantage ... which could jeopardize our plant," he said.

Japan-based Bridgestone is the world's No. 1 tire company in terms of sales; Goodyear, which is based in Akron, Ohio, ranks third.

Bridgestone has had travails of its own. It has been shifting production from the U.S. and Western Europe to countries that offer cheaper labor, and a recall in 2000 of tires that were linked to more than 200 deaths and hundreds of injuries cost the company more than $1 billion.

But Bridgestone projects that profits will jump 28 percent this year, and the company has talked of a 10-year expansion plan for the Wilson plant.

Retaining manufacturing jobs has become a priority for North Carolina lawmakers, who have watched more than 200,000 factory jobs disappear across the state just in this decade.

Tire manufacturing is coveted because of the pay and benefits associated with the jobs. Goodyear pays its Fayetteville workers an average of $55,000 a year. Hourly workers at Bridgestone also earn $55,000 a year.

But new workers hired at Goodyear's Fayetteville plant won't earn nearly that much.

Under the old contract with the United Steelworkers, which represents 1,800 workers in Fayetteville, the starting wage after 60 days on the job was about $24 an hour. But under the new contract the union agreed to in December -- after a 12-week strike -- workers with 60 days on the job will earn $13 an hour, said Darryl Jackson, president of union Local 959.

Easley also criticized the bill he vetoed for giving Goodyear the leeway to cut as many as 750 of its 2,750 workers and still receive aid. The law passed Tuesday requires Goodyear to keep as many as 2,200 workers on the payroll.

Jackson is confident that Goodyear wouldn't cut that many jobs, because the current union contract caps job cuts at the plant at 10 percent. Jackson said the union would never agree to a contract in 2009, when the current contract expires, that doesn't include the same protection.