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UPDATE 1-Goodyear says may cut U.S. tire-making capacity

(Recasts first sentence, adds company and analyst comments, closing share price, changes dateline previously AKRON, Ohio)

By Susan Kelly

CHICAGO, Jan 30 (Reuters) - Goodyear Tire and Rubber Co. , grappling with a weak domestic tire business, said on Thursday it may cut some North American production capacity due to an industry glut. Its shares fell 9 percent after hitting an all-time low earlier in the day.

The No. 1 U.S. tiremaker said it might cut capacity by up to 15 percent but did not specify a figure. The Akron Beacon Journal, citing a Goodyear letter to employees, reported on Thursday that Goodyear may cut 15 percent of its North American tire-making capacity.

"Could it reach 15 percent? Yes. But there is no 15 percent in a plan," Goodyear spokesman Chuck Sinclair told Reuters.

Goodyear shares ended 54 cents lower at $5.35, a drop of 9.2 percent on the New York Stock Exchange, after falling earlier in the day to a new low at $5.23.

Analysts said the stock fell because the company has yet to provide a clear blueprint on how it plans to become more competitive.

"If you are sending out signals that you are going to restructure a business, then something is wrong," said Ronald Tadross, analyst at Banc of America Securities, which does investment banking for Goodyear. Tadross owns no Goodyear shares, and has a "neutral" rating on the stock.

"Goodyear has fundamental operational and financial problems that will come to a head in fairly short order unless something dramatic occurs," UBS Warburg analyst Saul Rubin, who rates the stock "reduce" and does not own shares, wrote earlier this month in a research note.

The Akron Beacon Journal said Goodyear might shift production of some tires to other countries because it could no longer afford to produce low-priced commodity-type tires in North America.

Akron, Ohio-based Goodyear operates 13 tire plants in the United States and Canada. The company employs about 38,000 workers in its U.S. and Canadian tire and industrial production plants.

Goodyear has no immediate plans to shut any North American tire plants but must find ways to make them more competitive, Sinclair said.

"This is an extension of what we've been doing in our manufacturing rationalization all along," he said.

Sinclair said Goodyear's competitors that enjoy cheaper manufacturing costs don't face high pension and health-care costs.

The company has moved some production of its lower-cost tires to plants overseas, said Wayne Ranick, a spokesman for the United Steelworkers of America, which represents about 11,000 Goodyear employees. Negotiations with the United Steelworkers for a new labor contract begin in March.

"They are looking at productivity and costs in terms of tire-making. But they have much bigger problems. They have major managerial problems and major marketing problems," Ranick said.

Since the start of the fourth quarter, Goodyear has laid off about 1,200 hourly workers, from plants in Union City, Tennessee; Stow, Ohio; and Akron, Sinclair said. The company also added 300 workers at a medium-truck tire plant in Danville, Virginia.

The weak U.S. economy has hurt sales of replacement tires industrywide as consumers have postponed purchases.

But Goodyear's tire shipments have lagged industry averages in recent months, hurt by the company's emphasis on premium brands at a time when Americans are being more frugal, said J.P. Morgan analyst David Bradley.

"Over the long run, pocketbook matters, and premium brands have seen the erosion," said Bradley, who rates the stock "underweight" and does not own shares.

Goodyear, which lost $203.6 million in 2001 and is projected to turn in a performance that is close to break-even for 2002, has shed thousands of jobs in recent years as it struggles with worldwide industry overcapacity. The company is expected to report 2002 earnings in the next few weeks.

Analysts said the pressure is on Chief Executive Robert Keegan, who took the helm in October, to provide a road map for a turnaround in 2003.

Goodyear needs to take a hard look at some of its underperforming businesses, such as private-label brands and its sales to automakers and distributors, said Bradley, whose firm does investment banking with Goodyear.