Fitch Places Goodyear's Ratings on Watch Negative.

Business Editors

CHICAGO--(BUSINESS WIRE)--June 30, 2003

Fitch Ratings has placed the Goodyear Tire & Rubber Company's (Goodyear) senior unsecured rating of 'B' and the senior secured bank facilities rating of 'B+' on Rating Watch Negative. Approximately, $5 billion of debt is affected. The rating action is based on the current labor negotiation situation which is at a standstill after two deadlines have passed, and the heightened possibility of a work stoppage. Such a work stoppage would carry significant near-term operating and financial impact. Beyond the concern of the immediate impact of any potential work stoppage, however, is the elevated concern over whether Goodyear will be able to gain appropriate operating flexibility to take costs out of its key North American Tire operating segment. Fitch believes that much of Goodyear's operating turnaround strategy rests on whether cost improvements and operating efficiency in North American Tires Segment can be achieved.

Goodyear is in the midst of negotiating a labor contract with about 19 thousand employees at 11 of the 14 Goodyear tire plants in North America represented by the United Steel Workers of America union. Since the initial deadline had passed on April 21 without an agreement, the contract had been extended on a day to day basis. Fitch estimates that about 40-50% of Goodyear's North American tire production capacity is at risk through a potential work stoppage.

Following the credit restructuring in April 2003, Goodyear had access to about $1.5 billion of liquidity. However, substantial cash claims loom in the near future with required pension contribution of approximately $400 million in early 2004. Fitch estimates that contributions of similar magnitudes will be required in the following years. Also, due to the operating losses and large seasonal usage of working capital in the quarter, Goodyear showed a negative $373 million of operating cash flow, before $90 million of capital expenditure for the quarter ended March 31, 2003.

Given the protracted negotiations leading up to the April 2003 credit restructurings, and the relatively limited 2-year term of the restructured credit, rapid and demonstrable progress in Goodyear's turnaround strategy was expected. However, the difficult labor negotiations with wide differences between the two sides on the key issues such as plant closures and sourcing of tires from non-North American tire operations, suggest the operating turnaround predicated on a successfully renegotiated labor contract is at risk. While Goodyear was in compliance with the restructured bank financial covenants as of March 31, 2003, an extended work stoppage increases the risk of covenant violations. If financial covenants and other terms and conditions are not breached, much of the restructured credit facilities mature in April 2005.

North American tires Segment represent roughly half of Goodyear's 2002 consolidated revenues of $13.9 billion. After posting a segment operating loss of $36 million for the year in 2002, three months ended March 31, 2003 showed continuation of the operating slide, showing deeper segment operating losses of $62 million. Poor capacity utilization, cost headwinds with raw material price volatility, pension and health care expense increase, brand management issues, and distribution channel management problems have all figured into these operating difficulties. Given that cost and competitive pressures are expected to persist, a successful labor agreement allowing for cost reduction and operating flexibility is critical.

This rating is provided by Fitch as a service to users of its ratings and is based primarily on public information. For a recent full credit rating report on Goodyear, dated June 11, 2003, please see our credit analysis at 'www.fitchratings.com'.