Friday, September 16, 2011

Goodyear Tire Comeback Story: U.S. Manufacturing Can Be Competitive with A Two-Tier Wage System

AKRON, Ohio — "Five years ago, the wheels had just about come off Goodyear Tire & Rubber. The 113-year-old tire maker was losing money, feuding with its workers and struggling to compete with foreign imports that undercut its prices at stores across the U.S.

Today, this industry icon appears to have regained traction after a painful transformation. It downsized operations, found common ground with union leaders and fought imports by using technology to turn its tires into prized consumer products. Goodyear is now profitable with a smaller, highly skilled work force and selling more premium-priced tires.

In the first half of the year, Goodyear sold 89.7 million tires, just 2% more than the year-ago period, but revenue was up 25% to $11 billion and income soared, to $143 million from a loss of $19 million.

Rich Kramer, who took over as chief executive in April 2010 after overseeing operations and finance, says the key to its turnaround has been concentrating on fewer but higher priced products targeted more toward consumers than auto makers. Almost 75% of its tires now sell for $130 and up. Four years ago, almost 40% of the tires it produced were low-end tires retailing for about $60 apiece.

"Our strategy in the past was based on volume. Now we look only to make the tire consumers want. It's easy to say but hard to do," said Mr. Kramer, 47. Its former strategy focused on running factories at high volume to offset operating costs. Now, the company is focused on being "a consumer products company and not just an auto supplier company," Mr. Kramer said.

One key to Goodyear's turnaround has been better relations with its union employees. In 2006, it locked horns with the United Steelworkers union in a battle over retiree health care costs that led to a bitter, two-month strike. Eventually, the two sides reached an agreement that offered Goodyear a two-tiered wage system and more flexible work rules in exchange for putting $1 billion into a fund to cover the cost of health care for retired workers. The company also reduced its U.S. plants to 16 from 29; nine were part of a division that was sold.

Goodyear also committed to modernize its U.S. plants to produce more advanced, higher-end tires. Since the strike, the company has spent more than $900 million to upgrade its North American plants and equipment."

MP: Here's another example of how American manufacturing can be increasingly competitive globally, especially when U.S. firms can get their labor costs to be more competitive with the two-tiered wage system that is helping to revive the domestic auto industry.  Being based in the United States, America manufacturers have always had the best access to the most innovative, cutting-edge, advanced and automated production technology that gives them a competitive cost advantage over manufacturers in Asia, South America and Europe.  

But what has most handicapped American manufacturers in the past and driven manufacturing overseas has often been the over-priced, higher-than-market labor costs for factory workers in the United States.  Now that American manufacturing wages are starting to adjust to a more realistic, market-driven and globally competitive level, thanks in part to the two-tiered wage system, we can expect to hear more stories of American manufacturing revival like the Goodyear example above.

HT: Bob Wright

14 Comments:

At 9/16/2011 10:54 PM, Blogger sethstorm said...


...higher-than-market...

Invoking "higher-than-market" is just another expression for envy. The supposed lower-wage nation only is able to undercut is by main


...highly skilled...
...competitive...

Skills complaints just seem to be a thinly veiled way to say you don't want US citizens. You get to say all you want about the US citizen having some alleged deficiency, while getting out of civil rights laws.

I'd kindly like to know of companies where they did significantly more than just ask for a skilled workforce to arrive at their doorstep. There would be a LOT less of a problem if the unemployed weren't as forsaken as much as they are now.

 
At 9/16/2011 11:25 PM, Blogger Michael E. Marotta said...

Like Abraham Lincoln's ax, which had several new handles and heads, Goodyear is not the "same" company it was. They became a multinational in the 1920s. Long a leader in Formula 1 racing, they withdrew to engage NASCAR instead. The changes are many and varied. With operations worldwide, US production is just part of a mix. In any case, while labor wages are always a factor, they are typically only a small fraction among many inputs. Often, it is the hidden costs of labor (lost productivity) that make it expensive.

From the quotes provided, it seems that the real margins were found in the higher price of semi-custom products. (These are not your father's white walls.)

 
At 9/17/2011 7:03 AM, Blogger Larry G said...

" more flexible work rules in exchange for putting $1 billion into a fund to cover the cost of health care for retired workers. "

this is a cost that companies in countries with universal health care do not have.

it might be true that there are other costs at the country level associated with universal healthcare but it's also undeniable that at the company level - not having to pay for health care is a significant competitive advantage.

 
At 9/17/2011 7:19 AM, Blogger sykes.1 said...

Two-tier pay systems eventually become one-tier systems as the older workers retire. Goodyear has just engineered a massive pay cut.

The fact that they have to restrict their product line to high-value tires despite the pay cut indicates that further pay cuts are in the offing.

What happens to the larger economy when salaries and wages are half their current value?

 
At 9/17/2011 7:30 AM, Blogger Larry G said...

I was looking at Michelin which is a world-wide company with a substantial presence in the US:

employment by country

United States 17,313
Canada 3,550
Mexico 710


Employment by State

South Carolina 7,711
Alabama 1,950
Oklahoma 1,783
Indiana 1,603
North Carolina 425

Worldwide:

111,090 employees

70 production facilities in 18 countries

Michelin's share of the global market in 2009: 15.5%1

and was wondering....

are they using a two-tier system?

what kind of pay and benefits are they paying in the US?

many of their plants in the US are in SC which is a right-to-work state but I don't know if their plants are unionized or not.

just FYI - I'll take a Michelin tire over a Goodyear any day of the week even when they cost more.

bottom line: Michelin is a worldwide company with substantial operations in the US and as far as I know (which I admit is little) do not have the problems that Goodyear seems to have.

would a Goodyear to Michelin comparison be an apple-to-apple one?

 
At 9/17/2011 8:09 AM, Blogger Don Culo said...

We need to bring back child labor and slave labor so we can compete with India and China.

When will the Americans learn this?

 
At 9/17/2011 8:23 AM, Blogger Walt G. said...

Why aren't U.S. companies forced to be competetive with foreign companies' executive pay? Can it really be argued a G.M. executive adds more stockholder value than a Toyota executive? Parity and market wage determinates do not seem to flow uphill.

 
At 9/17/2011 10:13 AM, Blogger morganovich said...

"Invoking "higher-than-market" is just another expression for envy. The supposed lower-wage nation only is able to undercut is by main"

um, no.

higher than market means that lots of others will do it more cheaply.

why do you think goodyear was hemorrhaging so much money and very nearly went BK?

they lost close to $400 million dollars in 2009 and another 200mm in 2010.

this was due to wages being set much too high and an inability to the out of union contracts until the company was literally on the ropes.

they are 4.8 billion dollars in debt.

even with this new cost of labor, they are in for a tough slog to pay that off, but that's what happens when you let costs get out of control and lose money for 5 years.

 
At 9/17/2011 1:40 PM, Blogger sethstorm said...


higher than market means that lots of others will do it more cheaply.


Only by removing freedoms from workers/jobseekers and giving businesses the freedom to be despotic.

 
At 9/17/2011 3:08 PM, Blogger Benjamin said...

This is yet another post that suggest US workers must be paid less to we can compete in world markets.

If so, should US workers approve, or disapprove, of global free trade?

 
At 9/18/2011 6:38 PM, Blogger Ron H. said...

"If so, should US workers approve, or disapprove, of global free trade?"

They should approve. As good citizens, they know that their personal sacrifice is more than offset by the benefit to all others who buy tires.

 
At 9/20/2011 9:12 AM, Blogger VangelV said...

Here's another example of how American manufacturing can be increasingly competitive globally, especially when U.S. firms can get their labor costs to be more competitive with the two-tiered wage system that is helping to revive the domestic auto industry.

Why not just let the market set wages at the appropriate level? Why not change the tax code so that corporations have an incentive to make capital investments in the US?

And let us not forget the other part of the story; the imposition of 35 percent duties on Chinese imports. If consumers were not force to pay so much more for Chinese tires Goodyear may not be able to get as much of a marketshare and not be able to survive even with the two tier system.

The solution to the problem is simple. Let the free markets do their jobs.

 
At 9/20/2011 9:56 AM, Blogger Bill Reeves said...

The unions are creatures of the state who used their political power to get a limited right to legal extortion. Many of them used that right to drive their marks to the edge of bankruptcy. Now at Goodyear, they are giving up some of the 'rights' they extorted in exchange for huge payments to their older members. And who pays? Why the young and weak, natch. It's always the young that pay. You see, they have no power. And their parents and grandparents? Apparently, they have no honor.

It's all so progressive.

 
At 9/20/2011 10:30 PM, Blogger Ian Random said...

sethstorm,

Also remember that union means you can't fire the incompetent dangerous workers easily and they will use your dues to defend these folks. I remember when there was talk of a union where I work, sure enough the worst workers were the most in favor.

 

Post a Comment

Links to this post:

Create a Link

<< Home