December 8, 2006

To:                  All Goodyear USW Employees and Retirees

From:             William (Bill) Cook, Vice President of Human Resources
                        North American Tire
                        Bruce Kendrick, Director of Human Resources
                        Engineered Products

Date:             December 8, 2006

Subject:       An open letter on retiree medical benefits

During the course of this year's negotiations with the Steelworkers, significant time and attention has been devoted to the subject of retiree medical benefits. We are writing to you because this is a critical issue and it deserves a special effort to ensure that Goodyear’s proposals are made clear.

A trust can make retiree benefits safer and more secure
Goodyear is proposing to make retiree benefits safer and more secure by establishing an independent trust. By law, the trust assets would be available to protect Goodyear retirees from suffering the same loss of benefits as retirees at companies like Bethlehem Steel and LTV Steel. A VEBA trust will make retiree benefits safer and independent of the futures of Goodyear and the Union. At a time when many companies are cutting back on retiree medical benefits, or eliminating them completely, we believe that our proposal gives Goodyear retirees the protections lacked by others.

Goodyear’s $660 million up front contribution is fair
Is Goodyear’s proposal to initiate the trust with a lump sum contribution valued at $660 million fair? We believe that it is. Why? Because, funding a trust is a long term strategy, not unlike purchasing a U.S. Savings Bond. When you buy a $100 bond, you pay $50 up front. Why not the full $100? Because you are paying years in advance. The bond is redeemed when the money is needed. Similarly, the VEBA would be established with an up front contribution from Goodyear. As with a Savings Bond, this advance payment creates the potential for the VEBA trust to invest and grow beyond its “face value.”

The VEBA can have additional income and funding
Beyond this initial contribution, the VEBA should have additional ongoing income. As with other VEBAs that benefit USW members, Goodyear employees can choose to divert some of their future earnings, such as COLA and profit sharing, to the trust. Also, trustees of the VEBA can invest to generate additional income for the trust. And, rather than paying premiums to Goodyear, retirees can pay premiums to the trust. The VEBA can have substantial annual income from these sources.

Why a VEBA is better than the current plan
So, why change the current plan?  Because a VEBA creates an opportunity for making healthcare more affordable to retirees than it otherwise would be. Beginning in 1991, the company and the union have agreed that Goodyear’s contributions towards retiree benefits will be limited or “capped.” Beyond these limits, retirees are responsible for all of future inflation.

Goodyear’s contribution has now reached the limit for its contributions as previously agreed with the union. However, the costs of the benefits continue to rise and are now greater than Goodyear’s contribution. If we don’t change our approach, we believe that it is inevitable that retiree premiums will increase substantially every year.

Effective April 2007, premiums will be as high as $159 per month. Inflation is projected to drive some premiums to about $350 per month by 2009. We believe that the VEBA trust approach can significantly lessen the impact of inflation on retiree premiums.

The VEBA could last for decades
How long will the VEBA trust last?  Goodyear’s internal and external experts have projected that, as proposed and with reasonable management and investment returns, the VEBA trust can last and provide excellent benefits for 20 to 30 years.

The Steelworkers Union has many VEBAs
The idea of a VEBA trust to secure and provide retiree benefits did not originate with Goodyear. The USW has previously embraced the notion of VEBA trusts -- which it refers to as “innovative” -- with other companies, both inside and outside the rubber industry.

Goodyear agrees with the union that a VEBA trust is a sound concept. It offers Goodyear retirees greater safety and security in an area filled with rapidly rising costs and uncertainty. And it would give both Goodyear and employees a better chance to be successful in the future.

Goodyear’s proposal is negotiable
Finally, Goodyear’s proposal on the VEBA trust is not cast in stone. As we have repeatedly said, Goodyear’s bargainers are ready to return to the bargaining table at any time without preconditions to negotiate our proposal with your union’s bargainers.

Hopefully, we have addressed the questions and concerns that you may have had regarding our proposals on retiree medical benefits. Goodyear wants you to be accurately informed about what we are proposing as well as why we are proposing it. We trust that this information will be helpful as you consider the issue further with your colleagues and union leaders.