It was a bit of brinkmanship, but the steelworkers union representing about 15,000 Goodyear
The sticking point between unions and management seems to be plant closings. Three years ago, the union had agreed to one plant closing and made concessions on pay, pensions, and health-care benefits. It's estimated that Goodyear can save $50 million by closing a plant, and while the company would not divulge what it was offering, it's thought that it wanted to close more than one underperforming factory. That was unacceptable to the union, which canceled its day-to-day contract agreement and went on strike.
Tire makers in addition to Goodyear have been driving on a road full of potholes consisting of higher raw materials costs, higher fuel prices, and cheap imports. In particular, Chinese imports have been undercutting the market. Cooper Tire & Rubber
It's not just U.S. manufacturers that have been harmed, either. Continental and Bridgestone have both faced bumpy roads this year. Italian tire maker Pirelli canceled its IPO as the market for tires worsened.
U.S. manufacturers have had to raise prices to offset the cost of rising raw materials and oil, which makes up a large portion (about 60%) of the overall cost of a tire. While Goodyear has announced plans to exit from the lower-cost private-label tire business -- that is, tires made by manufacturers like Goodyear but sold under a different name and usually at much lower cost -- the move was seen as strategic in that it allowed the tire maker to focus on selling only its most profitable lines.
The company has been struggling to turn itself around for three years now, and it has largely accomplished that by reaching a more firm financial footing. But Goodyear still has large legacy pension costs to contend with and a large amount of debt that it must pay down.
The steelworkers' strike may be just the thing that allows Goodyear to speed up the transfer of manufacturing overseas. It already has some 90 manufacturing facilities in 28 countries at which it could increase production. There would not necessarily be a need to buy a plant or outsource production as other companies might have to do, which would allow Goodyear to power-shift ahead of competitors that do not have the same global reach.
It's doubtful Goodyear would publicly admit that the strike is what it needs to further expand overseas production, but it did say that in response to the strike it would have to rely more on imports to make up the difference. When the strike is ultimately settled, it would not be surprising to this Fool if overseas production levels did not return to lower pre-strike levels.
Should Goodyear's stock price suffer a blowout as a result, investors might want to use that deflation as an opportunity to pick up shares. Greater overseas production will ultimately reduce costs, which will roll down to the company's bottom line later on.
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