Goodyear Looks to China to Reduce Costs

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In a bid to reduce costs, Goodyear Tyre and Rubber’s Chairman has announced the company’s plans to begin buying more of its equipment, tyres and raw materials from China. At the annual Goodyear shareholder’s meeting the increasing prices of raw materials was hot on the agenda, and executives pitched ideas on how to relieve the pressure of inflation within the market. Robert Keegan, the Chairman and CEO for Goodyear, emphasised that the company is exploring different ways to quell the rising production costs, claiming that the “initiative will accelerate over the next two years”.

Responding to Keegan’s determined aim, Goodyear Spokesman Keith Price referred to the $35 million that Goodyear saved in 2006 by buying its equipment, raw material and low-end tyres from third parties in China. The company decided that this money-saving initiative was to be continued and increased, while other proposals such as expanded tyre production in China or additional plants in the Dalian facility were not added to Goodyear’s immediate plans.

Goodyear is one of the first companies to announce plans in response to the recent rise of raw material costs which has affected the majority of major-brand tyre manufacturers. Adding to the companies defensive manoeuvre is the effect of recent closures in the US, Canada, England, New Zealand and Morocco which, along with increased raw material prices, has led Goodyear to the resolution that a global initiative to cut costs is necessary. The announcements at the shareholder’s meeting did not include any plans to reduce employment or close production facilities, although Mr Keegan was eager to assert that Goodyear would continue to review cost-reducing opportunities within the next two years.

Despite the import given to reducing costs for the company, the initiatives announced at the shareholder’s meeting do not suggest that Goodyear is in a compromising situation. In fact, Mr Keegan underlined the company’s plans as pre-emptory and ongoing rather than reactive and immediate. He suggested that Goodyear is in a strong position in 2007, stating: “When you combine our core business focus with strong top line growth, a better cost structure and a stronger balance sheet, you have an organisation that is capable of moving forward at a much quicker pace than anything you have seen from Goodyear to date.” Mr Keegan added that “the market is presenting Goodyear with significant opportunities in 2007” and that the company plans “to aggressively capitalise on those opportunities.”

The Chairman summarised Goodyear’s achievements in the last year, referring to the company’s strong product leadership, the improved revenue per tyre and the lower cost structures that have helped Goodyear to excel. Mr Keegan had a positive message for shareholders concerning the company’s increasing strength, stating that: “While there are still plenty of challenges ahead, we now have a proven track record and much stronger business platforms than when our journey began four years ago.”

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