Goodyear Tire & Rubber Co, North America's largest tiremaker, plans to cut 3,500 jobs and may reduce sales to automakers after a fourth-quarter loss of US$174 million gave the company its first annual loss in nine years.
Most of the annual loss came from costs in the latest period to cut jobs and replace about 200,000 light-truck tires. Goodyear, which had 96,000 employees, is eliminating jobs in Europe, Asia and Australia this year to further reduce costs.
Goodyear also said sales to automakers such as General Motors Corp and Ford Motor Co may be slashed by about 25 percent over three years because of declining profit margins. Goodyear sells about 30 percent of its tires to manufacturers, often at a loss because automakers demand lower prices from suppliers.
"Getting rid of those money losing lines is an important focus to aid profitability," said David Katz, president of New York-based Matrix Asset Advisors, which manages US$800 million and doesn't own Goodyear stock. "If the economy picks up, Goodyear's cost cutting gets them in shape to make some good money."
Shares of Goodyear rose US$2.06, or 9.6 percent, to US$23.46 on expectations the company will benefit from the cost cutting. The stock had dropped 17 percent in the past year.
"Cost cutting efforts have begun to take hold," Chief Executive Samir Gibara said on a conference call with analysts.
Gibara reduced production every month last year because of falling demand in North America and cut 10,000 jobs in 2001. That, and price increases of about 8 percent to consumers helped boost average revenue per tire by 4.1 percent, the company said.
Goodyear's loss for the year was US$203.6 million, or US$1.27 a share, compared with net income of US$40.3 million, or US$0.25, in 2000, the company said in a statement. The fourth-quarter loss widened to US$174 million, or US$1.07 a share, from US$102 million, or US$0.65, a year ago. Sales dropped 1.5 percent to US$3.47 billion.
Goodyear may reduce sales to automakers also because consumers no longer replace tires with the same brand that came with the car they bought, the primary reason for selling to automakers, Gibara said.
"Consumers buy based on different criteria than in the past," Gibara said. "We're not seeing the same loyalty factor."
Last month, Goodyear said that tire production for automakers may be reduced unless it's able to win price increases.
"It's not uncommon for a supplier to come to us and ask us to re-source business that isn't profitable for them," said David Barnas, a spokesman for DaimlerChrysler AG's Chrysler unit. "We work with our suppliers all the time on these issues."
Chrysler gets 80 percent of its tires from Goodyear and the rest from Michelin & Cie, Barnas said. He wouldn't say whether Goodyear had discussed with Chrysler any plans for cutbacks.
Ford Motor Co also is "aware of Goodyear's situation," said Frank Sopata, a spokesman. "Like all of our suppliers, we'll work with them."
Goodyear had also needed the volume from sales to automakers to keep its plants running efficiently, Gibara said. A new labor agreement now allows Goodyear to lay off workers faster than before, which adds flexibility to manufacturing costs.
The company said it will focus on high-profit products such as run-flat tire technology and commercial-truck tires to boost profit. Goodyear also wants to improve forecasting abilities and streamline distribution methods, Gibara said.
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