NEW YORK, March 28: US tyre-maker Goodyear Tire & Rubber Co would reap "substantial" savings from the creation of a single European currency after shelling out $20 million to prepare for it, a company official said."The cost of trading, pricing products, and sometimes hedging will all disappear," chief executive offices Samir "Sam" Gibara said. "The other positive step is that it will force Europe to converge its economies, (which) will stabilise the economies and allow them to grow."
In a telephone interview, Gibara also said the company will use the $420 million it will receive from the planned sale of its oil business for capital investments and acquisitions, which will help it achieve its ambitious plan of nearly doubling sales within five years to $20-23 billion.
He denied planning to take over Sumitomo Rubber Industries Ltd, a Japanese tyre maker with some $4.8 billion in annual sales that has long been rumoured to be on Goodyear's wish list.
Gibara added he was "comfortable" with Wall Streetestimates of earnings of $5.08 a share this year, which means Goodyear should increase its 1997 $735 million operating profit by eight per cent to around $793 million. He warned, however, that analysts are reassessing their estimates in the light of Goodyear's oil business sale.
Gibara said the single currency project, slated to take off next January, got a shot in the arm earlier this week when the European Commission said 11 European Union member-states had met the qualification criteria for the Economic and Monetary Union (EMU). Gibara was confident the countries will implement the project but warned the effects will be largely monetary.
"It certainly has no impact whatsoever on what are the two main issues in Europe -- the high cost of producing and the related unemployment issue," Gibara said. "If (unemployment) is addressed as some governments are recommending now -- through social measures and reducing the work week -- then this is a step in the wrong direction.
"The only effect of these measuresis to amplify the welfare state," Gibara said. "What is needed along with the single currency is deregulation of the labour markets."
A single currency, however, will produce "substantial" savings for Goodyear, Gibara said, but he said he could not quantify them yet.
The company will spend $20 million to unify its books and implement the single-currency software packages now sold by some of Europe's banks, Gibara said.
One of the immediate benefits includes product pricing, Gibara said. Goodyear's pan-European product pricing -- in place since the mid-1980s -- worked very well up to 1992, when Britain and Italy dropped out of the Europe's fixed exchange rate system and floated their currencies.
"The floating of these currencies and the de facto devaluation meant ... our intermediaries and distributors could buy (our) products wherever it was cheap," Gibara said. He added the change resulted in Goodyear increasing sales in the Britain and Italy, "but not necessarily profits because the currencies haddevalued."
"The single currency puts an end to that," Gibara said. "In terms of (other) savings, all transactions will be much easier. There was a lot of duplication due to (currency) translation."
Goodyear last month said it aimed to increase revenues to $20-23 billion in the next five years, from $13 billion last year, through a combination of acquisitions and using new technologies that will make manufacturing more efficient and tyres more durable.
The company earlier this month agreed to sell its oil pipeline business for $420 million to Plains Resources Inc, in a move that is expected to prepare Goodyear to acquire another company to make up for the lost revenues of $89.8 million in 1997. The sale ended Goodyear's costly 15-year experiment in the oil business, for which it took $755.6 million in pre-tax charges in 1996.
Analysts have bet on Goodyear acquiring Japan's Sumitomo Rubber. The two firms agreed last year to produce tyres for each other in their respective domestic markets.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
