Rising rubber prices caused the five-year credit default swaps of Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. to widen last week. Goodyear's CDS widened 100 basis points to 450-460, while Cooper's CDS widened 50 basis points to 410-420. Goodyear is also negotiating a labor contract with the steelworkers union, which also caused some volatility on its CDS, said a trader.
In May, Goodyear said $185 million of higher raw material costs had a negative impact on its first quarter results. One of the ways the company has tried to offset these effects is by broadening its products mix to include higher margin products and increase the prices of its tires, said a spokesman.
He said it has increased the price of its tires eight times in the past year-and-a-half. Goodyear posted $74 million of net income in the first quarter of 2006, compared with $68 million in the first quarter of 2005.
In May, Cooper Tire reported in its first quarter results that it had experienced higher raw material costs. It recorded a $5 million net loss in the first quarter of 2006, compared to a $5 million net profit in the same period last year. A Cooper spokesman did not return a call.