Goodyear's pension represent a huge cash call on the company over the next few years, a problem which has been greatly exacerbated by the stock market decline during 2008.
A debt of $4.5 billion makes Goodyear vulnerable to changing interest rates and puts pressure on the success of the North American Tire segment for a necessary increase in cash flow.
GT more than doubled in the third quarter of FY2009, but through cost cutting, lower material costs, and a stop in new products. However, GT can only do this in the short run. In the long run, GT cannot sustain an increasing bottom line with an ever decreasing top line. GT's forecast for an operating loss in its key North American market in the next quarter is a reminder of this factor.
By FY2008, GT's North American Tire Segment only made up about 38.5% of total sales. In recent years, GT's sales have become dependent upon its International segment, as North American Tire Segment has year-on-year succumb to negative or near zero operating margins. Unfortunately, GT's largest competitors, Michelin, Bridgestone, and others have already established themselves as well-positioned players in the Asian markets, making it difficult for GT to become the dominant player in a market it is trying to grab hold in.
Goodyear's 2006 transfer of its retiree medical obligations to a privately administered VEBA fund considerably lightened the company's balance sheet. Nevertheless, this new labor agreement does not eliminate the risk of another strike or work slowdown by Goodyear's highly unionized workforce even if the company needs to cut costs or compensation in the face of the recent global economic slowdown.
GT is highly dependent upon its overseas operations. Its North American Tire Segment, for example in FY2008, only made up about 38.5% of GT's total sales. This is partly because GT's North American operations have year on year been near zero or even negative for its operating margins. But as GT begins to position itself globally, it realizes that its larges competitors such as Michelin and Bridgestone are already well-positioned in these markets, making it difficult for GT to become the dominant player in a market it desperately needs to gain a foothold in.
