Fitch Removes Goodyear From Rating Watch Negative; Outlook Negative

CHICAGO--Sept. 25, 2003--Fitch Ratings has removed the Rating Watch Negative on the 'B+' for the senior secured debt and 'B' for the senior unsecured debt ratings of Goodyear Tire & Rubber Company (Goodyear). The Rating Outlook is Negative. Approximately $5 billion of debt is affected.

The United Steelworkers of America union which represents workers at nearly all of Goodyear's North American tire plants recently ratified a new 3 year contract after several months of negotiations. Forging a new contract with greater flexibility for cost reduction was crucial in Goodyear's plan to effect a turnaround in its struggling North American Tire operations. While the contract does incorporate some much needed cost reduction measures, particularly in the area of pensions and healthcare, the majority of the company's near term projected impact is represented in cost avoidance. Actual reduction in structural costs may be limited in the short term and as a result, can only serve as one element of the turnaround in North American Tire operations. Of equal or greater importance now are the company's plans to increase productivity and utilization, improvement in market share, rebuilding brands and pricing integrity, and restoring distribution channels. While the new contract allows the company to import tires from offshore sources based upon various conditions which must be satisfied concerning production levels in the protected union plants, in the near term, the company may not be able to significantly increase the sale of imported tires which was to make them more competitive in the low end of the market.

The new labor agreement also requires that Goodyear raise $325 million of new financing ($250 million of debt and $75 million of equity or equity linked securities) by December 2003 and launch a refinancing of the U.S. bank facilities by December 2004, months in advance of the April 2005 maturity date. These requirements could result in further increases in financing costs and further compresses the tight timeframe under which Goodyear will need to show improvement in its operations.

Over the next 6 to 12 months, Fitch expects that industry demand for replacement tires will rebound to more historical norms in North America. However, Goodyear's North American Tire operating performance will continue to face cost headwinds, including high raw material costs and pension and healthcare cost burdens. However, progress in the company's restructuring program, combined with any reversal of recent raw material price spikes and higher utilization rates from capacity rationalizations and higher end demand could serve to expand margins over the near term. The company's margin performance also remains exposed to price competition from more efficient competitors. Margin expansion will need to occur in order to generate cash available for debt reduction and pension obligations.

At June 30, 2003, Goodyear's consolidated balance sheet debt amounted to just over $5.0 billion, a substantial increase over $3.8 billion at March 31, 2003, largely reflecting the migration of receivables financing back on to the balance sheet, and higher cash balances. Debt also increased due to the negative cashflow from operations with seasonal usage of working capital and poor consolidated operating profitability. Goodyear remained compliant with bank financial covenants at June 30, 2003.

Liquidity at June 30, 2003 was provided by $1.2 billion of cash and equivalents and $167 million of availability under committed bank lines. Substantial cash commitments come due over the next 12 months with pension funding requirements in the range of $400 million due in 2004 along with about $167 million of retiring debt. The company will continue to require access to external capital markets in the latter part of 2004 and into 2005 as it faces the bank refinancing requirement, further pension contributions and 2005 long-term maturities approaching $500 million. Continued access to funding and liquidity will largely depend on its demonstration of turnaround in the core North American Tire operations. Liquidity could be supplemented in the event of a sale of the company's chemicals operations or other non-core assets.