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