Goodyear to Save $215 Million with New Labor Deal

| About: Goodyear Tire (GT)

The Goodyear Tire & Rubber Company (GT) has revealed details about its master labor contract, ratified by members of the United Steel Workers (USW) union on Sep 18. The master contract covered about 10,300 employees at seven tire plants in the U.S. The plants are in Akron , Ohio ; Buffalo , New York ; Danville , Virginia ; Fayetteville , North Carolina.; Gadsden , Alabama ; Topeka , Kansas ; and Union City , Tennessee.

The master contract is expected to provide Goodyear with cost savings of $215 million over its term. Combined with savings realized through pre-bargain agreements to reduce staffing levels at five plants, the company expects to realize $555 million in total savings over the term of the agreements.

The contract also allows Goodyear to invest $600 million over the term of the agreement in its USW facilities to make them more efficient and productive. Additionally, it provides continued job security for six of the company's USW plants.

The agreement also gives Goodyear the flexibility on vacation scheduling and staffing levels. It will also help the company to trim $55 million of wage and benefit costs, according to Richard J. Kramer, Goodyear's Chief Operating Officer and President.

Goodyear is focused on streamlining its operations by achieving cost reductionsof $2.5 billion by 2009. Of this, the company has already achieved $1.8 billion by the first half of the year.

A weak industry demand negatively affected Goodyear Tire’s results in the second quarter of the year. The company has reported a net loss of $221 million or 92 cents per share for the quarter versus earnings of $75 million or 31 cents per share in the same quarter of 2008. Total segment operating incomeplummeted 93% to $24 million from $330 million in the prior-year quarter. Sales went down 25% to $3.9 billion.

We continue to recommend the shares of Goodyear as Neutral with a target price of $19.