Sumitomo Rubber Industries will reclaim ownership of the Goodyear Dunlop Tires North America plant in the Town of Tonawanda, as part of a broader deal announced Thursday between the two companies.
Japan-based Sumitomo is ending a joint venture it formed with Ohio-based Goodyear in 1999. Sumitomo already had a 25 percent interest in Goodyear Dunlop Tires North America; Sumitomo will now acquire Goodyear’s 75 percent interest, including ownership of the Tonawanda tire plant.
Thomas O’Shei, the president of United Steelworkers of America Local 135, which represents 940 unionized employees at the plant, said it is too early to tell if the ownership change will result in major changes at the Sheridan Drive factory, although he noted that the union’s contract runs through 2017 and includes a clause that keeps its terms in force following an ownership change.
Sumitomo had purchased the factory from Dunlop in 1986, and owned all of it until the joint venture deal 16 years ago.
“Most of us have worked for Sumitomo before,” O’Shei said. “They were a good employer. Nobody had any problems working for them.”
About 170 managers and outside contractors also work at the factory, boosting its total employment over 1,100, O’Shei said.
The Tonawanda plant makes tires for automobiles, light trucks, buses and motorcycles. The site has the capacity to produce 4.6 million tires per year, and is one of the region’s largest manufacturing employers. The plant dates to 1923 and is one of six Goodyear manufacturing facilities in the United States.
Sumitomo said its goals for Dunlop after the joint venture ends are to operate in Japanese and emerging markets as Sumitomo’s major brand, and to capture an opportunity to expand its North American business.
Goodyear will retain exclusive rights to sell Dunlop-brand tires in the consumer and commercial replacement markets in the United States, Canada and Mexico, as well as to non-Japanese vehicle manufacturers in those countries.
Sumitomo will acquire full ownership of the Dunlop motorcycle tire business in North America, and will have rights to sell Dunlop-brand tires to Japanese vehicle manufacturers in the U.S., Canada and Mexico.
The broader deal also affects joint ventures between Sumitomo and Goodyear in Europe and Japan.
In all, Goodyear will pay Sumitomo $271 million upon the closing of the transaction, expected to occur in the fourth quarter. Goodyear also will pay Sumitomo $55 million within three years to repay existing debt. One of the conditions for closing the deal is that Sumitomo work out a labor agreement with the Steelworkers union at the Tonawanda plant.
“While we have derived value from the alliance over the last 16 years, Goodyear is well positioned today to pursue our strategy on our own,” said Richard J. Kramer, Goodyear’s chairman and CEO. “This successful resolution increases our flexibility to grow profitably as we continue to focus on delivering strong performance and sustainable economic value.” A Goodyear spokesman did not return a call to comment further.
Sumitomo said the divorce from Goodyear will give it a “greater degree of autonomy” over its business, including its original equipment tire business with Japanese automakers and its original equipment and replacement motorcycle tires. The deal also will allow Sumitomo to own its own manufacturing and research and development sites in North America and help it focus on emerging markets with high growth potential.
Sumitomo also noted the deal will help it build the Falken tire brand into a stronger, more global brand.
Sumitomo said the joint venture had yielded benefits, especially in the early days of the agreement, by strengthening its finances and helping it expand in Japan and emerging markets. But the Japanese company said the benefits had been limited in recent years as the joint ventures in both Europe and North America didn’t perform as well as expected and there was less technology exchanged between the firms. Rising competition between the two companies in emerging markets also added stress to the joint venture.
By February 2014, the venture reached a breaking point, with Goodyear accusing Sumitomo of “anticompetitive conduct in violation of applicable antitrust law” and announcing that it was launching a process to dissolve the joint venture. If the two sides had not reached a break-up agreement, an arbitrator would have been brought in to decide the fate of the joint venture.