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Goodyear Strikes a Loss

Though union power is on the wane, its ability to shoot itself in the foot remains as potent as ever.

In the 12-week strike at Goodyear (NYSE: GT  ) , the union managed to extract some concessions from the tire maker that should see its members' pensions preserved, though they could not stave off the closing of a manufacturing plant.Yet they also caused Goodyear to lose $367 million in the quarter and lowered North American sales volume by 2.8 million tires and sales by $318 million.

Creating a more financially unstable company does nothing to improve your own job security. It's a myopic vision of what's important now. The impact of the strike will continue to affect performance, as Goodyear expects to incur $200 million to $230 million in strike-related costs for the first half of the year in North American operations.

Excluding the costs of the strike, along with other special charges like the plant closings and an exploration of the sale of its engineered products division, Goodyear actually made a $0.22-per-share profit in the quarter. Sales in its international segments were at record levels and helped to minimize the impact of the North American operational losses.

The strike has also allowed Asian tire manufacturers to gain more of a foothold here. Japan's Bridgestone has been able to increase sales in North America, largely on the back of much lower labor costs in Asia. In particular, Chinese tire manufacturers have been using the weakness in Goodyear and French tire maker Michelin to make inroads.

Tire manufacturers still face increased costs for rubber and other raw materials, though they are off their peak highs. Goodyear reported such costs rose 17% for the year. High rubber prices resulted in margins at Michelin contracting from 8.8% to 8.2%, while net profits fell 36% for the year.

Goodyear reports it is ahead of schedule on its cost-cutting measures and will be seeking to make even deeper cuts, though the company provided no details on what that might entail. Interestingly, as other manufacturers exit businesses to reduce costs, Cooper Tire (NYSE: CTB  ) actually might come out a winner. It remains the last domestic supplier of private-label tire makers after Goodyear exited that business last year, but still has a host of other troubles besetting it.

The turnaround at the world's third-largest tire maker is still progressing. The strike put a serious crimp in its efforts, though now that it's settled, Goodyear should be able to continue to restore the company to health -- despite the best efforts of its unions.

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Fool contributor Rich Duprey owns shares of Goodyear but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

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