Chapter Five

"Goodyear cuts 1,000 jobs in Quebec"
by Ross Marowits
January 4, 2007
http://cnews.canoe.ca/CNEWS/Canada/2007/01/04/3156369-cp.html

Nearly 1,000 employees have been fired from Goodyear Tire and Rubber Co. after they announced that they would stop producing tires at its factory in Valleyfield, Quebec. It is also adding to economic troubles in a province already suffering from forestry industry layoffs. Looking at this the Akron, Ohio-based company said that they will create 200 jobs by opening a materials mixing centre at the location near Montreal in June. No one understood why Goodyear was firing so many employees when they have made many technological improvements and investments in recent years that helped the company a lot. Actually, the tires they made no longer fit into the demand of the American market, so Goodyear decided to stop making the products that the American market does not demand for. The company also got an offer of several million dollars, from the Quebec government officials, to help modernize the plant, but Goodyear chose a different path. The Liberal government has earmarked nearly $825 million to help the battered forestry sector, including $400 million in new money. It also provided hydroelectric and water rights to entice aluminum giant Alcan Inc. to invest US$1.8 billion to expand its smelter operations in Quebec's Saguenay-Lac-St-Jean area. This letting go of so many people in Goodyear recently saw T-shirt maker Gildan Activewear close its textile factory in the city as part of a massive restructuring that affected 546 jobs in Canada and the U.S. The decision to discontinue tire production at Valleyfield is one of those necessary steps to make Goodyear more competitive. In the forestry industry, there have been more than 10,000 layoffs in Ontario and Quebec and almost 2,000 in Atlantic Canada since January 2003. The Valleyfield closure will result in total charges estimated to be between US$ 115 million and US$120 million for restructuring and accelerated depreciation. Between $70 million and $75 million of the charges will be applied in the fourth quarter of 2006, with the balance of the charges affecting 2007. When complete, the closure is expected to generate annual cost savings of about $40 million.

Relationship to Chapter 5 - Unemployment Rate

This article gives us an example of demand-deficient unemployment, which results from a lack of overall spending in the economy. Goodyear is one of the world's largest tire companies and makes engineered rubber and chemicals in more than 100 facilities in 29 countries around the world, employing about 80,000 people. They are just the latest automotive parts company to struggle with high-cost facilities, especially in the United States. Auto parts giant Delphi Corp. threatened huge wage cuts and plant shutdowns as it sought ways out of bankruptcy. In addition to reducing overall capacity, the Valleyfield plant was targeted because Goodyear wants to get out of the low-margin, private label product manufactured at the facility. The elimination of tire production in Valleyfield will reduce manufacturing capacity by an additional seven million units. The company plans to cut production by 21 million units, compared with original targets of 15 to 20 million units by 2008. The reduction in both capacity and labour in Valleyfield is related to the company's global strategy to reduce excess high-cost manufacturing capacity.

Personal Reflection -

It is surprising that Goodyear would just close down because there's not enough demand for their product in the American market. It is shocking that instead of making a new product, they decided to fire people. On the other hand, in today's intensely competitive and increasingly global business environment, we face some very difficult choices. The tire maker, which settled new contracts with Canadian and U.S. workers just last week, has already announced closures of tire plants in Britain, New Zealand and Texas. It would make a little sense that the Goodyear Company just close down in one spot, but all over the world! That is amazing. They should try to come up with a new kind of tire to promote their tire company since it was one of the best tire companies out their. I have also noticed that there are less number of commercials of the Goodyear tires on T.V. than how many commercials of it we saw before. The owner probably got old and too tired of thinking of another idea that he/she thought that could be so great that it would bring the demand for their tires back up to high numbers. At a time when there was not as much competition, you could protect your pricing and cost and your margins a little bit better and that model is really breaking down quickly.