Goodyear Tire & Rubber Co. (GT)
United Steelworker 2013 Agreement Conference
August 27, 2013 9:00 am ET
Thomas Kaczynski - Vice President of Investor Relations
Richard J. Kramer - Chairman, Chief Executive Officer and President
Darren R. Wells - Chief Financial Officer and Executive Vice President
Itay Michaeli - Citigroup Inc, Research Division
Aditya Oberoi - Goldman Sachs Group Inc., Research Division
Rod Lache - Deutsche Bank AG, Research Division
Ravi Shanker - Morgan Stanley, Research Division
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Thank you, Tony, and good morning, everyone. Thank you for joining us for Goodyear's United Steelworker 2013 Agreement Conference Call.
Joining me on the call this morning are Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer.
Before we get started, there are few items I need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com.
A replay of this call will be available later today. Replay instructions were included in the press release announcing the United Steelworker agreement issued this morning.
If I can now draw your attention to the Safe Harbor statement on Slide 2. Today's presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in the news release we issued this morning. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
And with that, I'll now turn the call over to Rich.
Richard J. Kramer
Thank you, Tom. Good morning, everyone, and thank you for joining us on the call today. When we began negotiations with United Steelworkers in late April, our goal was to build on the significant progress made in the 2003, 2006 and 2009 contracts and enable our North America business to continue its momentum. We believe our new 4-year agreement meets that goal, allowing us to enhance our competitiveness even in the midst of continuing economic challenges.
Like the past 3 contracts, this contract addresses both our operational efficiency and structural costs. The new agreement permits us to freeze legacy pension obligations for USW employees, building on our 2006 action to eliminate retiree health care obligations and our 2009 agreement to move new hires to 401(k)-type retirement plans.
In addition, the new contract adjusts our profit-sharing plan to reduce its costs and keeps wages and benefits in aggregate, consistent with the prior contract. These steps align with our strategy road map and further position our North America business to continue on its path.
As shown on Slide 4, that path is the result of a series of actions, each building upon the other. This contract is one of those actions and likewise builds on the previous agreements. In 2003, we focused on addressing unproductive capacity and reducing costs to help support the early stages of our financial turnaround. These were tough decisions around plant closure, wage and benefit reductions and other necessary actions.
In 2006, we addressed our retiree medical obligations through the VEBA, an innovative strategy soon implemented by numerous other companies. Also, we eliminated more high-cost capacity, increased labor efficiency through job reclassification and implemented a tiered wage structure.
In 2009, we improved our efficiency within the 4 walls of our factories. In that contract, we further reduced high-cost capacity, improved performance standards to drive consistent and measurable productivity gains and continued to address the pension obligations by shifting toward a defined contribution plan for all new hires.
These 3 agreements enabled us to address significant cost and productivity challenges by closing 3 unproductive high-cost plants. At the same time, we improved our flexibility to better respond to rapid and ongoing changes in the tire industry. Taken together, they helped us fundamentally change our North America business model.
And we believe our new contract with the USW addresses our major remaining structural concern, allowing us to increase the transparency to the success in our underlying tire business.
The new agreement accomplishes 3 things: first, it allows us to fund and freeze the defined benefit pension plan, moving exclusively to a defined contribution plan; second, it reduces the maximum annual profit-sharing payment, maintaining performance incentives while lessening the volatility of the previous plan; and third, it continues medical cost sharing and maintains overall wage and benefit costs consistent with the prior agreement.
In summary, we view this agreement as the next action in the continuous process and a positive step on our journey towards sustained value creation in North America.
I'd like to express my sincere thanks to Goodyear's chief negotiator, Jim Allen, who has led all of our bargaining efforts going back to 2003 and the USW's lead negotiator, Tom Conway, and their teams for the months of hard work to reach this agreement. We sincerely appreciate their efforts.
The turnaround of our North America business was a result of genuine teamwork, especially between Goodyear and the USW membership. We have seen what we can accomplish when we work together with shared purpose and common goals as one Goodyear team.