Goodyear Tire & Rubber Co (GT) 2009 Q3 法說會逐字稿

Good morning. Welcome to the Goodyear third quarter 2009 financial results conference call. I will turn the call over to Patrick Stobb, Director of Investor Relations. You may begin your conference.

Thank you, Ashley. Good morning, everyone. Welcome to Goodyear's third quarter conference call. With me today are Robert Keegan, Chairman and CEO. Rich Kramer, Chief Operating Officer and President of North American Tire. Darren Wells, Executive Vice-President & CFO. And Damon Audia, Senior Vice President, Finance and Treasurer.

Before we get started there are a few items I would like to cover. To begin, the web cast of this morning's discussion and the supporting presentation can be found at our website at investor.goodyear.com. A replay of the call will be accessible later today. Replay instructions were included in our earnings release issued earlier this morning. The last item we plan to file our 10Q later today. If I could now direct your attention Safe Harbor statement on slide two of the presentation. Our discussion this morning may contain forward looking statements based on our current expectations and assumptions that are subject to risks and uncertainties that can cause actual results to differ materially. These risks and uncertainties are outlined in Goodyear's filings with the SEC and in the news release we issued this morning. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether it's a result of new information, future events or otherwise. That finishes my comments.

I will turn the call over to Bob.

Thanks, Pat. Good morning, everyone. Thank you for joining us on the call this morning. On today's call I will comment first on our solid third quarter performance and how our strategy has contributed and Darren will provide detail on the financials and our outlook. I will come back and provide a perspective on our confidence both in the attractive market opportunities available to us and in our strategy for capitalizing on them in 2010 and beyond. Darren, Rich, Damon and I will then take your questions.

Before I begin an overview of the quarter, I wanted to reflect for a few moments on my recent experiences across the globe that I believe illustrate both the effectiveness and the speed of our new product engine. You are aware of our introduction earlier this year of uncompromising fuel efficiency technology into the market to quickly address changing consumer needs, a breakthrough made possible by our open innovation work with Sandia National labs and our new product capabilities. In the third quarter, we have seen continued strong sales performance from the Assurance Fuel Max tire in North America and the efficient grip tire in Europe. In August, I was at a new store opening of a Goodyear dealer in Mexico City where they were already enthusiastically preparing to sell the Assurance Fuel Max just a few short months after the North American introduction. And in China where I visited with dealers during the September trip, both the celebrate 15th anniversary of our business there and to seek Goodyear state of the art manufacturing plant being built at Platinum, our associates and our dealers were very excited about the planned quarter four launch of the efficient grip and July 2010 launch of fuel max in China. So, our industry leading new product engine is not only working, it's delivering our latest technological achievements to our markets globally at an unprecedented pace. These are unfolding examples of how we will only get better on what for us is a competitive advantage.

You will recall that last quarter we talked about respectable and encouraging results despite difficult conditions. Today I am pleased to say that our operating results were again strong in Q3, reflecting first the success of our strategic actions that address top line, cost and cash initiatives. Second, improving market conditions and third, lower raw material costs. The third quarter segment operating income of $275 million was in line with our operating plan for 2009 and greater than 2008, which I consider an excellent achievement for our businesses given the challenging economic environment and resulting lower sales volumes. Additionally our cash flow delivery was simply outstanding, reflecting working capital improvements in the quarter when seasonal sales typically drive cash usage. Highly effective execution of our plans to address global economic downturn helped mitigate the recession's impact. In addition we took the opportunity to make structural improvements throughout our businesses that will be productively leveraged as our markets recover.

Now, as in past quarters, I will provide a performance update on the quarter for each of our three focus areas. Top line, cost and cash. Begin with top line, we had significant sequential improvement in both revenue and units versus the second quarter, up 11% and 12.6% representatively in Q3 from Q2. In Asia/Pacific, particularly in China where the economy is rebounding much faster than in the rest of the world, we established a record for any quarter with segment operating income up 36% from 2008 to $68 million. We continued our relentless push on innovative new products and have now introduced 57 new products globally in 2009 versus our global objective of more than 50. The outstanding acceptance of those new products as measured by consumer purchases continues to highlight the benefit of having the industry leading new product engine that has become the face of the new Goodyear. I mentioned earlier the broad global appeal of what we refer to as the fuel max technology franchise. Products that incorporate our fuel saving technology. This technology has already contributed to strong market share performance. Sales in North America have well over 1 million fuel max tires in seven months since launch are a record for Goodyear high value added tire.

Price mix continued to hold up well. Along with the declining raw materials, we achieved a net benefit of $193 million versus Q3 in 2008. Our image of the market continues to strengthen. Once again in Europe, Goodyear and Dunlop branded projects achieved extra results in the ultra-important European winter tire tests from two influential automobile magazines in Germany. Wal-Mart in the US recently chose Goodyear's new Viva authority tire with fuel max technology to receive Wal-Mart's first ever WOW award. That's wow, "WOW" for the best new product of the hard line product category topping 5,700 other suppliers. Also in the US, the Dunlop (inaudible) to sport Z1 finished first in the test of seven ultra high performance products conducted by Sports Car Magazine and we were recently named by "Newsweek" magazine as one of the greenest big companies in America with a focus on environmental impact, green policies and overall reputation as environmentally conscientious company.

Our cost actions in the third quarter included innovative contract agreement with United Steel Workers in North America, and I know you are all well aware of that. When we think about the break through nature of this agreement that in combination with the 2009 pre-bargain agreements will deliver $555 million in cost savings over the four year contract period, we recognize that the work that was done in 2003 and in 2006 negotiations set the foundation for a successful 2009 contract. During this negotiation, I would emphasize that we were innovative in our pre-bargain agreements to address the need for staffing flexibility to mirror uncertain market conditions at five US plants. This includes removing the protected status of our Union City,Tennessee plant. We were innovative in the contract by incorporating much needed added flexibility inside the four walls of our plants to improve productivity. We were innovative in how we transition from the ground breaking viva trust in the 2006 agreement, which was copied by many others to a defined contribution retirement plan for substantially all post 2006 new hires. And we were innovative from moving from a three year to a four year agreement which provide sufficient time to fully realize all of the potential financial benefits of the contract.

We made substantial progress during Q3 on our four point cost savings plan to achieve $700 million in gross savings in 2009 and $2.5 billion in gross savings over four years. We achieved $195 million in new savings during the third quarter for a total of $540 million in the first nine months of 2009. We closed our Philippines manufacturing plant on schedule this quarter and continued to focus on our plans for -Amion North in France to discontinue that plant's production of consumer tires. When our continuing intense focus on cash, particularly on reducing inventory, we have further improved our cash and liquidity position. We were able to generate strong cash results in the third quarter as our supply chain initiatives have reduced inventories levels by more than $1 billion compared with the year end 2008 level. Our advantage supply chain continues here to be a game changer. And let me elaborate.

While we will build inventories back up over time to support increasing sales, it is certainly not our intent to return to the levels of inventory we had in 2008. Let me be clear. We believe that we can hold working capital roughly flat next year as our markets recover. Let me repeat that. We believe we can hold working capital roughly flat next year as our markets recover. We have learned a great deal through our supply chain work. I will provide another example. One of the benefits of this learning is our lower inventory levels are allowing us to restructure our North American tire logistics network. We closed two warehouses in 2008. And year to date we have exited several public warehouses and allowed a large Canadian dealer to take over a leased facility. By the first quarter of 2010, we expect to have exited three additional facilities with another two targeted for exit in 2011. These activities will generate substantial benefits in working capital and in cash flow.

While the global economic environment is improving, the magnitude and pace of improvement very significantly by region, by country and by segment. I will provide a brief overview of our industry by region. Asia is clearly leading recovery. You have the robust economy of China leading the way with now some positive signs of recovery beginning in Australia. North America and Latin America continue to stabilize economically. In North America, we have pluses in the consumer business with miles driven increasing for three consecutive months. That's miles driven increasing for three consecutive months through August and retail sales and manufacturing utilization improving. However, the unemployment rate continues to hurt consumer confidence and suppress consumer purchases. The commercial truck tonnage decline appears to have bottomed out but remains far below 2008 levels. In Latin America, we were seeing record automobile sales in Brazil and improving consumer replacement tire market. While Europe is still lagging economically, we are seeing some positive signs from a strong winter tire sell-in, improving consumer confidence and the stabilization of what has been a very weak commercial truck market. Overall the world's economies are showing increasing signs of recovery, but certainly not as fast as strong or as consistently as we all like to see globally.

Our Company strategy has agin proven to be very effective in 2009 through the third quarter. And our performance provides us with a high level of confidence for the future. We have a market oriented business model that gives us a leg up on the competition by understanding what the market wants and a new product engine that can deliver those products in unprecedented speeds to all our geographic markets. We leveraged that market oriented business model in 2009 by launching a wave of new products. And our consumer tire launches focused on growing the mid-tier segment with innovative features such as our fuel max technology. We utilize an improving supply chain to deliver products to our network of dealers in the right place at the right time allowing them to keep their inventories lower than previously required thereby maximizing cash for both good year and our customers. We are a leading innovator across our business system from the way we negotiate union agreements to the way we execute against our comprehensive four point cost saving plan to how we introduce new products. We instituted more aggressive cost and productivity issues globally. As I said earlier, we reached another break through agreement with the United Steel Workers in North America. We aggressively cut production to reduce inventory and drive working capital improvements. Cash remains king at Goodyear. We accelerated our reduction of high cost manufacturing capacity globally recently closing our plant in the Philippines. We took action on the capital markets to enhance our liquidity and balance sheet position as soon as the markets were accessible completing a billion dollar bond offering. Today our strong performance and our improving financial position reflect the success of these top line cost and cash initiatives. And they further demonstrate the power of our strategies and the proven capabilities of our leadership team.

I will turn the call over to Darren who will provide more specifics on the Company's Q3 results and our perspective on Q4 and then I will provide our view of the opportunities in 2010 and beyond before we take your questions.

Thanks, Bob. I will start this morning with a few summary comments before moving on to address our operating results, balance sheet and our outlook including comments on the fourth quarter in 2010. In the past two quarters, we have consistently been impacted by lowering industry volumes, increasing raw material costs and double hit from production cut that reflected not only lower sales, but also a need to reduce inventory. As Bob indicated, in the results for Q3 we see a different picture with markets recovering from where they stood earlier this year and with much of the work of reducing inventories now behind us. The third quarter also reflects the impact of lower raw material prices earlier this year, finally being reflected in our earnings after the normal one to two quarter lag. We see this benefit continues in Q4 and then expect raw material costs next year similar to full year 2009 levels if today's prices continue. So overall we see positives in the quarter as again we see improvement in our year-over-year results.

Looking at the income statement, sales were down approximately 15% from the prior year. This reflected week industry demand particularly in our commercial business and other tire related businesses which included retail and chemicals and also some adverse currency movement given the strengthening of the US dollar versus a year ago. Margins, segment operating income and net income all increased versus prior year as cost cutting, sustained price mix and lower raw material costs more than offset the effect of the weaker markets. SAG was down from a year ago, reflecting personnel reductions, lower advertising and the benefit of foreign exchange. Note that the third quarter after tax results in both periods were impacted by certain significant items. The appendix includes a summary of these items for this year and last year.

Going into more detail on the increase this segment operating income, you see that we were able to hold price mix about flat despite significantly lower raw material costs, weak volume and despite the effect of mix. Let me clarify what we see going on in the reported impact of mix as it's important to understand. Despite strong performance by our new products, mix has been a clear challenge to our results in Q3, driven by several factors. First, the weaker commercial markets, which are recovering more slowly than the consumer tire markets. Second, lower margin consumer OE business benefiting from government incentives. Third, mixed differences among geographies with some of our lower margin marks recovering more quickly. And fourth, significant strength in mid-tier branded products, which while very attractive, come at lower price point than premium product lines. So while we continue to see customers trade up to our new high technology product, there is some offsetting factors as we measure the overall impact of mix both on our revenue per tire and our segment operating income.

Also see that are four point cost savings plan generated savings of approximately $195 million in the quarter. Similar to the previous quarter, the plan to provided significant net benefits to our cost structure is general inflation was minimum in the quarter. Lower raw mater costs provided year-over-year benefit of $207 million or about 16% compared to the 2008 quarter, consistent with the range we provided on the Q2 conference call. We expect the year-over-year benefit from raw material costs will continue in Q4 although the magnitude of the benefit has been reduced by the recent upward trend in commodity prices. Our unabsorbed fixed cost at $141 million has been presented both before and after the benefit of restructuring actions taken over the last year. This unobserved fixed costs in our factories reflects production levels similar to Q2 and about four million units below a year ago as we work to reduce inventory and drive working capital improvements. In Q3, we saw higher per unit dollar amount for unabsorbed overhead than we have seen in the past. This is partly related to the mix of production between consumer and commercial tires. It's taken us longer to work down our commercial truck tire inventory. And partly the result of timing of how we recognized manufacturing costs. Either lag through inventory or taken in the period as required under US GAAP. Remember this year we had unabsorbed overhead carry over from Q2 that we didn't have in 2008. As we look forward, in Q4 we expect unabsorbed overhead to be worse than a year ago before restructuring savings despite higher production levels. Again, this reflects a mix between commercial and consumer tires and the impact of third quarter production cuts lag for inventory. As we move into 2010, we expect reductions in unabsorbed overhead compared to 2009 as volumes increase. We see an average benefit of about $15 per unit as a good assumption for calculating the impact of increased production of full year 2010.

The final point on segment operating income, third quarter results reflect added costs for incentive compensation compared with last year's third quarter which reflected reversal of accruals given the economic downturn and decline in the stock price. If we look at specific drivers of cost savings in the quarter, we saw results in each of the categories of our four point plan raising year to date total to $540 million. We remain on track toward our year end goal. This will bring our total over the four years of plan at $2.5 billion consistent with the increased target that we set at the beginning of the year.

Looking at our balance sheet, you can see the benefit of positive cash flow during the quarter. Normally Q3 would be a period of cash usage, even in a stronger economic environment. So the fact that we generated cash in the quarter is a significant point. This is now two quarters in a row where we normally would have used cash but instead we generated significant cash, further improving our net debt position. Note the significant factor in this positive cash flow is lower inventory, which is down $366 million or 13% from the end of Q2 and down more than a $1 billion from year end 2008. This is well above the target we set for the full year. The reduction stems from improvement in our supply chain as well as lower raw material prices. The challenge going forward will be to hold on to our improvements as demand returns, but we expect most of the improvement we have seen for Q3 will be held through year end. Our liquidity position in September 30 benefited from positive cash flow in the quarter bringing our cash and liquidity to $4.6 billion. Our cash balance in Venezuela continued to increase in the quarter. Like other manufacturing companies in that country, we have experienced delays in obtaining approval from the central bank to pay suppliers. This is resulted in a growing cash balance, about $350 million at the end of September. Although we have been able to obtain approvals to exchange some currency at official exchange rate during the quarter, there continues to be risk related to our business there. Looking forward, we believe it's possible Venezuela could be accounted for as highly inflationary country as early as year end which may result in a significant one time charge and increased volatility in our Latin America results.

Turn to the segment results, North America reported EBIT of $2 million in the quarter, which compares to a loss of $19 million in the 2008 period. The 2009 result is based on revenue of $1.86 billion and volume of 17.1 million units representing year-over-year declines of 15% and 5% respectively. Note that more than two-thirds of the revenue decline is explained by what we call as other tire related businesses, which include retail, lower third party chemical sales, motorcycle tires, aviation tires and racing tires. These businesses also impacted earnings. Revenue per tire was flat with the prior year partly driven by a lower mix of higher price commercial truck tires versus consumer. Economic conditions and industry demands improved compared to the second quarter with consumer miles driven improving as evidenced by increases in four of the last five months. September truck tonnage, the latest data available, decreased 7.3% versus 2008. This was a best year-over-year performance since last November.

It's important to point out the North American consumer tire industry demand was significantly impacted in the third quarter by two discreet events. First in the consumer OE business, the US Government's cash for clunkers stimulus program drove higher sales in July and August before the program ended on September 6, leaving the increased auto production and a pull ahead of our OE sales. Second, in consumer replacement business, third quarter industry sell in to dealers as reported was boosted by significant purchases of imported Chinese tires in advantage of the White House imposition of tariffs on such products effective September 26th, another pull ahead of demand. Including the benefit of the IPC ruling, the US consumer replacement industry increased by 2.5%. This low-end segment of the tire market affected by the IPC ruling is not one Goodyear participates in given its low profit potential. So, our sales were largely unaffected by this pull ahead of industry demand due the anticipation of the tariffs. The fact that our North American replacement sales matched year ago levels was not a reflection of industry demand as much as it was a reflection of strong market performance of the Goodyear brand and our new products. As we saw globally, the impact of raw material costs in North America were significantly favorable as well while price mix was essentially flat. Flat price mix is driven by two primary factors; first consumers have continued to favor mid-tier tires, the segment where our new products are focused. And second, mix has been impacted by the fact that North American commercial truck tire industry is recovering slower than the consumer industry. In North America, we continue to experience unfavorable year-over-year conversion costs driven by unabsorbed overhead costs of $40 million from lower production volume and higher pension costs of $48 million due to the impact of 2008 portfolio costs. These cost increases were offset partially by rationalization planned savings of $14 million, including shift reductions at Union City and other actions taken earlier this year and the savings from Viva of $23 million.

As we discussed in our September 29th conference call, NAT and USW recently ratified a four year deal that's expected to provide significant savings over the life of the agreement. During the third quarter we incurred charges of $5 million related to implementation of the contract, primarily 401(k) contributions for the past service for associates that will be part of a defined contribution retirement plan rather than the traditional defined benefit pension. Selling and general expenses increased by $13 million in Q3, more than explained by higher incentive compensation expenses. Europe, Middle East and Africa reported segment operating income of $106 million in the quarter, which compares to $134 million in the 2008 period. The 2009 results reflect sales of about $1.6 billion and volume of 17.8 million units, representing year-over-year declines of 18% and 9% respectively. Industry volume continued to weaken but at a slower pace than Q2. The decline was primarily in summer tires as the winter tire market increased year-over-year reflecting low dealer inventories after cold weather at the end of last year's weather season.

The consumer OE market was off despite continued stimulus efforts in Europe. The commercial truck markets declined was again significant but we seen signs of stability as market seems to have bottoms out. This is illustrated by highway kilometers driven in Germany declining by only 11% for Q3, following declines for 15% and 17% in the first and second quarters. EMEA sold 1.9 million fewer tires this quarter, reflecting the weaker industry conditions. Our brands continued to perform well in key segments, particularly in the ultra high performance summer segment and the high performance winter tire segment where as Bob mentioned our tires were clear winners in last year's German Auto Industry magazine test and performed strongly again this year. In key western European markets we continue to gain share positioning our business for future return to growth in these markets and we see improvements in the Middle East and Africa were markets are less effective of the economic downturn. Overall Europe, Middle East, Africa sales declined $355 million, reflecting lower unit sales as well as a weaker Euro compared with Eurek. As in North America, Europe's revenue also reflected weak commercial truck tire mix. As I mentioned earlier revenue per tire decreased reflecting the mix impact from commercial volumes. If viewed individually however, both consumer and commercial businesses saw increased revenue per tire. Raw materials for EMEA declined $53 million in the quarter. This favorable raw material impact though could not offset the negative impact of volume in the related unabsorbed fixed costs. Excluding translation, SAG in Q3 was $18 million below the prior year, reflecting significant cost reduction activity.

In Latin America, we reported segment operating income of $99 million, which is down slightly from the prior year result of $101 million. Favorable price mix and lower raw material costs were significant benefits in the quarter, nearly offsetting the effects of weak industry demands on sales and manufacturing costs as well as unfavorable foreign currency translation. The economies in Latin American continue to show recovery, with the most notable strength being in Brazil, where job growth, stimulus efforts and record low borrowing costs have helped drive domestic demand. With profits about equal last year despite a 16% decline in sales, margins were strong in the quarter at 20%. While price mix was favorable in Latin America overall, revenue for tire declined slightly, again the result of less favorable mix of consumer versus commercial tires. Revenue per tire would have been positive if this mix effect were excluded. Political issues resulting in trade barriers and currency controls in countries like Venezuela, Argentina and Ecuador continue to be a challenge. These barriers not only create cash and balance sheet challenges, but also hurt volumes and disrupt our business. The team in Latin America managing cost and working capital effectively and will continue to manage the specific country issues as they arise.

Our Asia/Pacific business reported second consecutive quarter of record segment operating income with $68 million reported in the quarter. The increase from last year reflects lower raw material costs and favorable price mix and was achieved despite significant natural disasters in the region. Volumes remain down slightly year-over-year, the results vary significantly across different countries. Both India and China are benefiting from high single digit GDP growth and seeing strong recovery in auto sales and infrastructure spending. While the Australian market has shown limited improvement, the management team is making good progress driving performance there. Improvements include the successful plant closing, new product initiatives and significant steps to improve cost structure throughout the organization. Price mix net of raw materials in Asia/Pacific was a benefit of $22 million, compared to last year's quarter. Revenue per tire increased about 2% just slightly missing geographic mix with lower mix than the predominently high value added market in Australia and New Zealand and strength in emerging markets. And as Bob mentioned, the team successfully closed the aging factory in the Philippines at the end of September. This is another step in improving our manufacturing foot print in Asia. So heading into the fourth quarter we see positives in the market in our businesses, with volumes recovering, strong market share performance and continued success in driving cost savings, allowing us to take advantage of market recovery.

Turning to the outlook I want to provide a couple of comments on the fourth quarter. Similar to the third quarter, in Q4 we expect to continue to see results in line with our plan and significantly improve from the prior year. The impact of raw materials would be again favorable in Q4 and in fact we expect raw material costs to decline 20% to 25% compared to last year. Similar to the third quarter, we will continue to cut production where we see market weak as we focus on aggressively managing inventory. As a result, production is expected to increase only moderately from Q3 to Q4. We also expect to again see increase accruals for incentive compensation compared to the reversals of a year ago. Compared to Q3, however, we expect segment operating income to decline as has historically been the case. In North America, we expect Q4 segment operating income to be down approximately $75 million to $125 million compared with Q3, reflecting first the impact of seasonal trends on unit sales and reduced activity from our other tire related businesses. Second, sequentially higher raw material costs compared to Q3 and third, timing of recognition of unabsorbed fixed costs related to production cuts, which is an adverse impact compared to Q3. Again Q4 is essentially in line with our plans of 2009.

We expect internationally segment operating income in Q4 will be similar to Q3 as a result of market recovery in Asia and Latin America and favorable currency. Our expectations for fourth quarter performance reflect continued recovery in the markets and success of our strategies but also reflects seasonally lower volumes, the recent upward trend in raw materials and some accounting timing for manufacturing costs. Nothing unexpected from our perspective. We continue to expect our full year Cap Ex to fall within our range of $700 million to $800 million, reflecting an uptick in Q4. We expect this higher quarterly rate to carry over in 2010 given the market recovery and a ramp up of construction of our plant in China. For modelling purposes, we expect interest expense in the range of $310 million to $325 million for the year. Note this is down from $330 million to $350 million that we mentioned in the Q2 call. We continue our tax expense guidance of 25% of our international segment operating income and I would note that we updated our estimated contribution to pension plans based on updated the actuarial studies and some funding relief for plans outside the US. Revised estimates are shown in the appendix of today's presentation. We reduced expect the contributions for 2009 to $300 million to $325 million. And more importantly, we now expect 2010 will be up only $50 million to $75 million compared to 2009, delaying expected ramp up in contributions until 2011. We have also seen significant return on our pension portfolio this year, up 21% through September. This strong performance if it continues through year end could significantly improve our pension position going next year. Bob?

Thank you. Darren. Given the improving results and the state of our markets, here is our perspective on 2010 and beyond. We have a high degree of confidence in the future of the tire industry and our ability to be advantaged as we capitalize on the industry's available and attractive market opportunities. Why? We are participating in an industry that will grow globally. More people will most certainly be driving more automobiles in the future. While that growth might not be universally dramatic, segments within the industry will grow at significant rates and those segments to find a target attractive market opportunities that we are most focused on. Think dramatic growth in large diameter rim sizes, high value added tires and emerging markets and consumer demand for new tire technologies as car technology evolves. We expect year-over-year growth in 2010 and each of our key segments globally with the consumer markets continuing to recover more quickly than the commercial markets.

Goodyear strong market position and growing capabilities will enable us to fully capitalize on these opportunities. You might think that of these capabilities the way we do within Goodyear as the reasons will be a much stronger competitor in the future and I will comment on each core capability. We have a management team that's been proven throughout the ups and downs of the business cycle and we continue to strengthen that team at every opportunity. This team's leadership has established Goodyear at the top of Fortune magazine's most admired list in the tire industry for the last two years. We recognize that business is a team sport and we believe we have industry leading management team. When you consider the power of what combination of an industry leading new product engine and the marketing tools that we wrap around it, the many product awards we are now capturing consistently and globally and are unmatched speed to market capability, is it most certainly a winning combination for the future. It's already being a differentiator and we are continuing to get better. For example, this year we were migrating our new technology from our initial emphasis in premium products to the mid tier segment. And in doing so, we are enlarging the addressable new product market for Goodyear.

With regard to channel management, our philosophy is simple and logical. We win with the winners. We align with the customers who are outstanding and we are then focused intensely on building their businesses not simply on selling them tires. We are focused on building their businesses. We have a strong portfolio of brands led by the Goodyear brand with the leading market share here in North America. In 2009, Goodyear has continued to build its leadership position. These four capabilities are driving a value creating pricing strategy and an outstanding ability to enrich our mix and generate increased margins. Here you should think about mix as an aggregation of product mix, brand mix and customer mix. Together these are very powerful.

With regard to our supply chain, I mentioned specific benefits earlier. Our supply chain is generating improved customer satisfaction and service levels with lower cost and lower inventory investment you see in our year to date performance. Overall, our improving supply chain and manufacturing competencies, using lean processes, driving SKU reductions and simplification of work, are now collectively referred to in Goodyear as the Goodyear operating system. The addition of Jack Fish with his 25 years of experience from GE as our Senior Vice President of Global Operations will allow us to take some very good work that we already accomplished well into the next area of improvement.

Our focus on cost structure improvement continues. You have seen our progress here in the form of our four-point cost savings plan. While we are now on the cusp of achieving our upwardly revised goals under that plan over four years, be assured our focus on creating a more competitive cost structure will continue well beyond our original planned horizon. This includes our plans to eliminate additional 15 to 25 million units of high cost capacity on top of the approximately 30 million units we eliminated since 2003. Our current strength and high growth markets of the world in Asia particularly China, Latin America and eastern Europe positions are teams to leverage many of the capabilities I have already mentioned into market actions aimed at capturing a significant percentage of that growth potential.

In the commercial truck market, we are prepared for the inevitable market rebound and it's critical here I think to recognize how far the truck replacement and OE markets have fallen over the past two years. Why? Because the operating leverage that we will have as the consumer markets rebound will be significant. In commercial truck, with the plans that we are implementing with our industry leading product portfolio and innovative service capabilities through our Fleet HQ program, the percentage rebound will be even greater. And so will our resulting operating leverage. Our solid position in the off the road markets primarily, mining and construction applications, where we have made a strategic decision to manufacture and market 63-inch tires, reflects our commitment to the deliver products that meet our customers changing expectations. As you have seen in a separate news release this morning, we just announced that decision on 63-inch tires.

Capturing the full benefit of these opportunities will obviously require investment in R&D, marketing and Cap Ex. And you can be assured that these high return investments will be accomplished with the same intelligent balance sheet management that our team has demonstrated over the past several years. So regardless of the speed of the economic recovery, we will continue to aggressively pursue the available market opportunities and they are significant. And the expected market trends play directly to our strengths. So we are solidly positioned to continue to win in the marketplace.

Thank you very much and we will open the call to your questions.

(Operator Instructions). Our first question comes from Pat Archambault with Goldman Sachs.

Hi, good morning. A couple of quick ones. I'm sorry if I missed it. In terms of the overall volume, I think you gave it for North America and international, but together you are on a consolidated basis sequentially, what are we thinking about in terms of volume going from Q3 to Q4? And I apologize if you guys said it and I missed it.

We haven't given specific numbers on growth from Q3 to Q4 in terms of industry volume or absolute volume. What we said is we see recovery continuing in all of our markets but I think we are looking at this as being something that will see growth compared with a year ago. Like we are confident in that but volumes are down in the fourth quarter from Q3. It's a seasonal effect. I think that's the easiest way to think about it. We didn't get specific numbers on it.

I guess just to probe more on that. I guess I might have thought that given the very weak nature of the demand the end market demand in both replacement in OE and some of the signs that you mentioned of a design recovery as we move forward, not only in terms of OE production but in terms of miles driven and all that stuff you cited. Wouldn't that have an effect of maybe trumping some of the seasonal impact, just given the significant dislocation of demand that you have seen over the last couple of quarters?

Our assessment is that that would not trump it. And remember that some the strength we seen over the last few quarters as well is a reversal of an inventory of fact. So you have a factor that into the equation as well. And everybody ran inventories up because the demand was soft and then ran inventories down for several months. So we factor that into the equation and argue we may be conservative on Q4. I don't think we were. I think we were accurate there and then come 2010 we will start to see as I mentioned growth in all of our key market segments.

In other words, it doesn't sound like you are expecting maybe some kind of a sequential down tick in volumes as you would normally get. It may not be as pronounced as in the past but will still be there.

As Darren said I think that's an accurate assessment.

Can you give us a sense -- it sounds like you had unabsorbed overhead costs of I think it was $107 million year on year. What sort of order of magnitude are we talking about for the fourth quarter and sort of what production cuts would you sort of attach to those versus what you cut in the third?

So, Pat, what we are looking at for production in the fourth quarter is production that will be up call it up moderately from the third quarter's level. In the third quarter if you take what we cut a year ago and the additional 4 million units we cut this year, you get -- you would say that we cut a total out of our capacity or what we would have seen two years ago by 12 million. Last year's fourth quarter we cut 17 million. This year we expect in the fourth quarter to cut less than 12 million than we cut in the third. We haven't given specifics there but you can think of it as up modestly from Q3.

When we think about the unabsorbed overhead and this is a tougher factor to evaluate. Because when we look at one quarter for unabsorbed overhead, there are a lot of timing factors in the accounting that come into play. So we will look at the fourth quarter and we will see we will produce more tires than we did a year ago. But we still expect unabsorbed overhead before our restructuring actions to be a negative, not a positive versus a year ago in Q4. And partly that's timing of recognition and partly it's the fact that a lot of production cuts this year are in the commercial truck tire business and that carries with it a lot higher level of unabsorbed overhead for you. We look forward to 2010. We see the unabsorbed overhead becoming a positive year-over-year. In the fourth quarter we have a combination here in timing and product mix that's going to make unabsorbed overhead still a negative. We were offsetting part of that with restructuring actions as we cut people out of the factories. I think that's the situation we have for Q4.

And that's we emphasize in the commercial truck business that when that business rebounds which it will, the operating leverage that we'll have that other people in the industry will have is going to be significant.

Okay. And I guess in to understand correctly your raw materials guidance, I think you guys said down 20% which will probably put it in the sort of $300 million range, you know year on year in terms of decline, but that still represents a little bit of an uptick sequentially, that correct?

You are right to think of it raw materials still being a little bit of an uptick sequentially. I think particularly you look at North America can differ a little bit by region. But clearly as we look at fourth quarter year-over-year we see raw materials down from a year ago 20% to 25%. I think your number is certainly within the range we would be looking at.

And last one if I may just quickly, can you help us understand the difference between the mix impact? It looks like mix pricing was down about $14 million if you strip it out of the raw materials stuff. Can you give us a sense of what part of that was mix and what part was pricing and maybe just how overall pricing has held up. That will be helpful.

Pat, the comments I made regarding mix are something that clearly a factor for us in the quarter. So we had some adverse mix in terms of weaker commercial markets versus consumer. We saw some adverse mix from our higher margins geographies being weaken than our lower margin geographies. We see weaker mix in places where we had government stimulated OE demand picking up and OE becomes a bigger part of the total versus consumer. So we had a -- versus replacement. So we had a few things going on that were adverse mix items for us. Clearly that played a role in price mix performance in the quarter. From a market perspective we continue to drive our value proposition. Our -- particularly our new technology products continue to generate high demand. And we are able to get good value for those products because of technology they can take. From that perspective we continue to do what we have been doing.

And I think in an environment where raw material costs and prices are coming down in fact maybe even drop things significantly over this time frame, I would say we seen very strong price mix performance if you eliminate some of those business mix aspects that Darren is talking about.

And any chance you can isolate just the price piece for us?

Pat, we haven't traditionally guided on that. We aren't in the position to start doing that now.

Thank you.

Understand the question. Thank you.

And our next question comes from the line of Rod Lache with Deutsche Bank.

Good morning, Rod.

Good morning. I'm still trying to get my arms around the drag from the sun absorbed overhead. Can you maybe just help us identify the impact from bringing inventory down as opposed to kind of matching the decline in demand? What as you look out to Q4 what's the impact that -- would you surmise that comes from the inventory correction and if you can give us color on the extend to which you think affected you for the full year just given the magnitude of your inventory correction?

Rod, it's a good question. We are in a point now through nine months we cut a little over 25 million units out of our production so we take a significant production cuts. Fairly high mix being in the commercial business which has a high per unit unabsorbed overhead cost. So that's clearly a factor to think about. It's something that we are seeing clearly. Part of the cost of bringing down our inventories by $1 billion dollar year to date has been cutting production to get those inventories in line. We have been able to do it to reflect volume. But beyond that we are able to do it because we were able to service our customers at lower levels now. And that allows us to drive down inventory and deliver permanent cash savings for us on the balance sheet. And clearly we made those tradeoffs. We said we will run the plants less and drive down inventory further and generate cash. And that's the right tradeoff for us. So clearly there have been effect that they driving down inventories beyond sales but there is also been that mix impact between commercial and consumer. As we go into the third impact, which is one that is even more difficult and one of the reasons that we given some specifics around the fourth quarter expectation, it is this timing question. In prior calls, we talked about FAS 151, which is the standard that determines whether or not we are unabsorbed fixed cost that lag through inventory that we would normally account for them or written off in period. And with the kind of volatility in our production schedule it's hard to give you rules of thumb on how that works so what we have done is give you an indication what we are expecting in Q4. I would say a big part of our expectation for Q4 has to do with unobserved overhead carrying over from Q3, just as in Q3 a big part was a increase in the carry over from Q2 that we didn't have a year ago. There is also of timing and mix and reducing inventory which drives production down further than sales would normally drive it down. I think the good news is next year our inventory reductions have been significant this year. So as we see sales recover next year we should see production more or less follow the sales pattern.

Okay. I guess I'm still -- I understand directionally what you are saying. The 25 million unit reduction you are talking about for production this year that compares against -- that's not an in excess of sales because you will have a 22 unit to 23 million unit decline in units sold, isn't that right?

I think you are right. We have take an few million more units out of production than we have of sales. You are dimensioning it the right way.

You said $15 a tire of overhead absorption more or less?

That's for next year. I can tell you that's the other thing that's difficult about this is we have come up with a rule of thumb to help you think about 2010. That rule of thumb does not apply this year. With the timing that we have had and the mix of products it won't work exactly the same way. That's why we have been specific in saying if you want to think about 2010 use $15 if tire and in 2009 there are a number of other factors we have gone through.

But there is no way to really quantify the year-over-year improvement that would be associated with keeping inventory kind of flat versus bringing inventory down this year?

Rod, there is not a simple answer to the question.

Right.

You have seen what level of unabsorbed overhead per unit we had in the three quarters we reported this year. It's been highly volatile because it isn't just a per unit calculation. There is the timing difference between what is recorded in period when production is cut severely versus what goes into inventory. Very hard to track through there without a lot more details than we are going to be able to go through on the calls

Are you expecting a minimal impact as you get into the first half of next year from inventory reduction or from -- overhead absorption.

I think next year the sales in production will track pretty close with each other.

And then just an overall comment on North America which has been weak for a long time now and can you just take a step back and then give us thoughts on what you think normalized North American margins could be and what time frame? Then lastly this Venezuela comment, what are the implications of that to your business?

Rod, we will start with North America.

Rich Kramer. What's normalized is a difficult one to answer given the volatilities we have seen. Darren referred to mix and numbers and times in terms of commercial truck versus passenger looking at our production schedules, getting our supply chain in line which in effect is trying to keep our fill rates up and operating on a much lower inventory level which means a weighting towards making the right tires not just making tires. And how we work through our factories with that and then consequently how we take the out put up and excess cost out and which is part of our union contract which is in line with those theories. To take a step back and say what's normalized that's involved in the economy that's going right now that's difficult to do. I would tell you as I look out at 2010 and beyond I think clearly there is an upside and a significant upside as we look at the business and we look at what's dragging us right now is not our consumer replacement business by and large. We were pleased with what's happening there and getting share with Goodyear bands and doing it with better inventory points and really the commercial business and the OE business and some of the off highway those types of things and that's what -- that's dragging us down and think of those as cyclical. We have leverage that we get out of them. Think when we go back to the metrics that we talked about on a 5% EBITDA level and what have you, we were still positioned to achieve that and your next question will be at what point in time. Again, the risk of bag little bit evasive if that's the right term we haven't put a time frame out for that and dependent on what happens in the economy. I don't have a particular time for you but clearly I think that it's still achievable. In fact I think we are in better shape to do it now that we have been in a while.

Darren, maybe --

Venezuela. Yes, and, Rod, your specific question on Venezuela is the comment on the business or comment on the balance sheet?

Well, you are taking a charge. You said it could be characterized as hyper inflationary. Do you see based on what is happening in Venezuela is there kind of an elevated risk to your franchise there? What exactly -- how should we interpret your comes about the charge you are takings in --

That's a good question and I think the comes meant to say that we may be in a position where we would need to change our accounting to hyper inflationary accounting. Couple things impact it but overall our business there remains strong. It's a good business. We have a good business model there. A strong local producer. We have a good team there. It isn't a comment about the health of the business or focus there. It is a comment about how we might account for currency translation related to Venezuela. If we go into hyper inflationary accounting, any mark to market of currency would go through the income statement where that wouldn't have been the case in the past. Now Venezuela has got a -- and this is something that will affect all companies, not just Goodyear. This is something where the SEC will ultimately come out and give an indication if companies should be using hyper inflationary accounting and see everybody go that direction. Nothing unique to Goodyear in that respect. I believe its two to a dollar or essentially two to the dollar. Offshore markets that trade different exchange rates. And decisions are requesting to be there which exchange rate you use if you use high inflationary accounting. There is no definitive expectation here at this point. But we look at it and say could create volatility for us in our reported Latin American results going forward.

Thank you.

Our next question comes from the line of Saul Ludwig with KeyBanc.

Hi, Saul.

On Rod's question. Right now you are translating your Venezuelan earnings at two to one. Is that correct?

At the official exchange rate.

And when you bring -- have you been able to bring cash out and do you have to change at different black-market rate to bring cash out?

We have been able to get exchange approved at official rate. Not as much as we would like to and we continue to work with officials there. Even in the last couple of weeks we have been able to exchange money at the official rates.

Thank you -- if we went to hyper inflation it could be like your earnings would go in half in Venezuela so to speak?

It openly comes down to what exchange rate we use. If the official exchange rate continues to hold and we continue to be able to exchange currency at that rate. There is no change in the exchange rate and the hyper inflationary accounting doesn't have as much of an impact. Once you move to hyper inflationary accounting, if there is an exchange in the exchange rate it's the income statement directly.

Darren, did you say that looking at fourth quarter North America versus third quarter your earnings would be down $75 million to $125 million?

Yes. That's the expectation that we indicate.

That's enormous and that probably explains why the stock is getting mangled. We heard over the years so many good things about North America. New products, more efficiency, union contracts and now we hear $100 million loss in the fourth quarter. What is it going to take do you think before some of these good things will start to show up in the bottom line?

This is Bob. We explained why this move from third to fourth quarter. It's not due to fundamentals of current business, right, to be frank. In 2010, we expect improving earnings going along with all of those core competencies in North America.

We have to wait until the second half of the year and look for a challenge in the first half and then come home big time in the second half?

I will just say overall my comments Saul are meant to apply throughout 2010. And of course, this is -- it's all volume related. When the consumer market shows signs of recovery which is showing us a positive thing as Rich indicated, the commercial truck business when that comes back we said they are significant operating leverage on the upside. By the way, there is significant operating leverage if you want to interpret it that way on the downside this year in the second half of last year as well as the volumes have declined. That's how we were looking at it that we continue to do the good things that we were doing in terms of good pricing strategy, great new products. Holding on to share good channel management that you are aware of.

With raw material costs having surged and hitting new highs and natural rubber hitting new highs, are we going to have to see a little some price movement that in 2010? Or if not, would you then start to get squeezed on your margins because of the high raw material costs?

We won't make a comment on speculating what will happen for a pricing standpoint. You have to think about this in terms of will continue to try to do things that are value creating in our whole marketing mix and that includes price.

This is my final question. You mentioned that you thought your international results in your fourth quarter would be somewhat similar. I guess in segment operating income was $273 million, similar in the fourth quarter. Yet in the fourth quarter we are going to have sharply higher currencies in Europe and Latin -- and all of Latin American countries. These currencies have soared where as you had FX pressure in the third quarter. So if your earnings were in dollars or the same in the fourth quarter internationally as in the third quarter, wouldn't that signify some underlying weakness because of the currency strength that you will have?

Yes. There are two things. There is no question that the as we look at year-over-year, currency in the third quarter was a little bit adverse. And as the dollar weakens as we look year-over-year results that position will change. But if we look at currency now just Q4 versus Q3, not that big of a movement in currency. There is some movement in currency. So you can see a little bit of benefit for currency and seasonal -- normal seasonal weaker volumes and in our international businesses as well. So you have a couple of things that are moving different directions there but overall we see our international earnings at about third quarter levels.

Thank you very much, guys.

Our next question comes from the line of Himanshu Patel with JPMorgan.

Two questions and sorry the second one is a little long winded. First one Sumi [Tomhoe] announced a price increase. Were you involved in that decision given it's your JV partner or was that done independently?

To address that. The last thing we ever talked to them about would be pricing. Ever.

And then I wanted to go back on the North American arithmetic. Your guidance for basically taking your profits in Q4 back to Q3 levels roughly $100 million negative. And when you look at that volumes in the second quarter were 13% below Q3 levels, but when I go back and look sequentially what happens to volumes third to the fourth quarter in '08 they were down 7% and that was arguably the beginnings of a deep recession post Lehman Brothers. '07 they were down 1%. '06 they were down 1%. I'm not exactly sure why volumes should be down that much. Two, versus the second quarter raw materials costs should be sequentially lower. Unabsorbed overhead costs I would should be lower as well and as Saul mentioned FX effect should be sequentially better. Why would your profits in the fourth quarter be the same as Q2 levels?

You are talking about the international businesses?

Just for North America?

I'm sorry versus Q2 levels. For North America, we look at it and say we have the earnings in Q3. We seen volumes going back down which we view as seasonal in nature. You could say part of it could be pulled ahead from the cash for clunkers. We had some things that might have influenced third quarter upward that we don't expect to recur in the fourth quarter. We do see seasonal volume trends and whether that's in particular segments of the market or overall we think that's a real effect for us as we look at Q4 versus Q3. Again, volume will be what it will be. There could be some difference of opinion on that. That's with a we see. We do see higher sequential raw materials Q4 versus Q3 where in Q3 we wouldn't have seen that versus Q2. So raw materials up. The other thing and I think I gave the long winded answer to Rod Lache, which is on the unabsorbed overhead but we expect unabsorbed overhead despite the fact production will be up a bit. It's going to be adverse as we look Q4 versus Q3. So we will see more unabsorbed overhead sequentially in Q4 than in Q3 in North America. And that's in effect for us as well. We also have some elements of the other tire related businesses including the chemical business that are going to put some downward pressure on Q4 versus Q3. There is a number of factors there. It doesn't -- none of which speak to the long term health of that business. All of which are relatively complicated and so what we have done is to provide increased clarity we have given you the expectation rather than trying to put the pieces together. Because it is something that takes a little time to work through.

I guess -- I mean I appreciate the sequential commentary from third to the fourth quarter. But I guess my reference point is Q2. You basically guiding to second quarter North American operating profits. Second to the fourth quarter I can't imagine raw materials are sequentially worse unobserved overhead costs are sequentially worse. Is it something on pricing? Something on incentive accruals for compensation is that changing versus the second quarter? Unless volumes are down 13% from the third quarter levels there is something else on the P&L that would guide -- that would take your operating income in Q4 back to Q2 levels.

I think we have gone through the pieces. It could be some differences in the other tire related businesses. There could be differences in raw materials, there could be some differences in unabsorbed overhead as we see the biggest cuts in our commercial truck tire production as they lag through inventory coming out in Q3 and Q4. So that's something that is in effect that's being building up for us. Those are the pieces that are there. The volumes will come out as the volumes come out. But I think what we see is seasonally down volumes Q3 to Q4 and understand that the Q3 was an uptick from Q2. So you have volumes going up and then back down again. Sequentially higher raw materials are trending upwards so there is an effect there. I can't speak to directly the calculation Q2 to Q4. I think the upward trend is there. And the unabsorbed fixed cost given the mix of products and the differences in timing is complex to work our way through. But the fourth quarter is getting full impact of carry over from Q3 as well as the fourth quarter production cuts. And with the increase cuts in the commercial truck tire business that's in effect that's gotten worse and worse.

Are the depths of the commercial vehicle production cuts, it sounds like you are taking a lot of that in the back half of the year. Could that explain the difference in sort of unobserved overhead costs?

I think it does. Behave been operating commercial truck plants in 40% of capacity. So it is a really, really severe cut and we are taking a lot of the impact of that in the second half.

Okay. And then maybe for Bob, what stage would you guys feel that the commercial truck inventory levels are healthy? By year end would you say production and sales on commercial vehicle tires can start matching each other?

I would like to start with Rich making a comment for North America.

From a truck perspective from our North America inventory perspective we are the lion share of the inventory reduction that Darren referred to and I would tell you particularly in truck we are operating now at levels that are really below during the strike. We think about a -- any kind of rebound or going into next year where we don't seat rebound in truck I think you will see production and sales coming back into line. Of course, our goal is to manage the increase demand that we will see next year at the same inventory levels we have right now. Not raising those things. I think that's going to see that next year. And just to re-iterate Darren's point. Darren made the combat complexity about what's happening between Q3 and Q4 and imagine not standing in the Q2 comment but I can tell you that that's the explanation that we are looking at as we see what's happening in the business. Fundamentally what we look how we were positioned in the truck and the passenger how we were positioned with our customers, the progress that we are making in the plants on a realtime basis meaning what's happening in fourth quarter versus what's going through the books to enter from an accounting perspective. I can tell you I'm very positive where we are at. Darren made the point we were on plan in certain areas and we are ahead of plan in the nut's of bolts what we are doing. There are a lot of complexities. I know you will try to understand that more post call and I don't know if the team is ready to do that. Fundamentally I would echo a lot of the comments that Bob made is look ahead we still feel positive.

May I sneak if one last one. Darren. The pension year to date, 22% -- the pension expense go down on the P&L in 010 versus '09?

Yes. It does. The P&L impossibility would come in 2010. The benefit on cash would probably be more of the effect on the 2011 contributions. But the 2010 P&L would benefit from the higher return.

Thank you.

And our next question comes from the line of John Murphy with Banc of America-Merrill Lynch.

Good morning, guys. If we think about -- can you hear me.

Yes, we can.

If we think about what happened with the import or the dumping of tires from China into North America market prior to the tariffs, does this have an impact in what you are seeing in the inventory channels in your business and it might help restrain the real restraint on volumes that you are seeing in the fourth quarter?

Go ahead, Rich.

I would tell you that what we saw are a lot of people doing a lot of big buys ahead in the third quarter ahead of the tariffs and you are seeing a lot of inventory out there. I think Darren mentioned in an early part of the call it's not a big part of the market where we play. And I would look at our volumes I think we would say you can take the IPC in the industry go down rather than go up. In that environment I would say we are outperform from a Goodyear perspective gain share in the third quarter. You think about what is happening in the fourth quarter I would tell you it really wouldn't impact us on a sequential basis because again it's not where we play. And in addition to that, the thing to remember while the channel took a lot of inventory in the third quarter breaking a trend of where the replacement market is trending for quite sometime. Directionally changed the trend, and there was really no change in end to consumer demand for tires. In other words, the dealers were buying tires in but consumers weren't buying any more tires out and that doesn't -- that trend won't change for the full year when our spend from the beginning of the year. Could it have an impact Q3 to Q4 but it may and I wouldn't tell you that. That's the best part of the primary part of the reason.

I would just say it will be more on the overall markets some other companies but for us it will have a nominal effect.

Got it. And then when we look at this weakness in the fourth quarter. In North America, would this expedite any action you might take at Union City and when we look at Union City relative to Tyler seems like the savings from Union City can be $50 million to $100 million annually. Does that seem right and will you expedition union city's closure?

We are intending to run the factories the same way we talked the last time we got together on the union contracts. There is no change in direction creating for Union City.

Remember, for us relative to our plan, we are essentially in line with that plan. So any comes we made quarter ago, two quarters ago, we were still on that plan and that includes any anticipated capacity changes that we made in the future.

And then on raw materials, when we think about it, it sounds like the increases booked in the spot market are coming through the P&L faster than the declines that were in the spot market are coming through and it seems like you aren't getting the benefit of the raw material declines and should be coming in the fourth quarter. Is there something going on there in different regions or the channel or how you are booking the raw material costs making the timing difference seem odd.

I think one factor is that the lower inventories will help us turn through it quicker. So the fact that we driven down inventories we have faster inventory turns means that the changes in raw materials will get reflected quicker. So that -- there is one element there. Different by region. We got some regions like Asia is going to see the impact of natural rubber much more quickly because it spends less time on the boat. Less time in inventory there. Some differences by region. Overall you will see some difference because of the lower inventories and the faster turns.

And then lastly the cash in Venezuela I think you were saying $300 million to $350 million.

Yes. It was nearly $350 a million.

That's obviously US terms with official exchange rates.

That's right. Official exchange rates.

Great. Thank you very much.

Thank you.

Thank you, John.

And we have reached our allotted time for questions. I will turn the call over to Mr. Keegan.

I wanted to come back we know we presented you with some complexity in Q3 and then our outlook for Q4. That's why we made the comments about 2010 and beyond. We will try to put that in perspective. And I encourage you to have the kind of interaction that we should have between us to try to get that tradeoff if you will between the short term and the longer term correctly in your minds. We were on our plan. We were hitting on all cylinders and that's true in top line in cost and in cash, guys. That's how I like to conclude the call and that's our perspective on it. Thank you very much for your interest this morning.

And this concludes today's Goodyear third quarter 2009 financial conference call. You may now disconnect.