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As Strike Continues, S & P Growing Concerned About Goodyear

Labor unrest could lead to depleted inventory, harming customer relationships.

Standard & Poor’s has put its credit rating on Goodyear Tire & Rubber on watch, with negative implications, citing the potential for business disruptions that could result from the strike at some of the company’s North American operations.

Goodyear’s contract with the United Steel Workers was up in July, and about 15,000 employees at 14 plants in the U.S. and Canada went on strike on Oct. 5. Goodyear’s priorities for a new labor contract are to lower legacy costs, reduce its high cost footprint, and increase productivity, while the union wants to preserve job security protections and employee benefits.

S&P said that since the strike started, Goodyear has borrowed about $1 billion under a revolving credit facility to maintain its liquidity should the strike stretch for an extended period. (Goodyear had about $1.3 billion in cash before the strike began.) Goodyear is now able to meet most customer requirements through existing inventory, but as inventory is depleted the company would see shortages that could hurt customer relationships.

“Ultimately, we expect the two parties to reach an agreement that should help Goodyear to lower its burdensome cost position in North America,” said S&P analyst Martin King. “The ratings could be lowered, however, if it appears that the strike is likely to strain the company’s credit profile for the near- to medium-term.”

King said Goodyear’s liquidity should be more than enough to allow it to meet its cash requirements at least for the next several months, but noted that business costs to the company will rise over time. The company has total debt – including the present value of operating leases and underfunded employee benefit liabilities – of about $7 billion.