• achieving our four-point cost savings plan target of $2.5 billion, by increasing our continuous improvement efforts, lowering our manufacturing costs, increasing purchasing savings, eliminating non-essential discretionary spending, and reducing overhead and development costs. We have achieved approximately $145 million of cost savings in the first quarter of 2009 and total savings over the life of the plan of $1.9 billion. In association with this plan, we had personnel reductions of approximately 3,800 people in the first quarter of 2009. We also implemented a global salary freeze in the first quarter of 2009;

• reducing manufacturing capacity by 15 million to 25 million units over the next two years;

• reducing inventory levels by over $500 million by the end of 2009 compared with 2008, through the combination of lower raw material costs and the implementation of an advantaged supply chain, primarily in North American Tire and EMEA, by improving demand forecasting, increasing production flexibility through shorter lead times and reduced production lot sizes, reducing the quantity of raw materials required to meet an improved demand forecast, changing the composition of our logistics network by closing and consolidating

certain distribution warehouses, increasing local production and reducing longer lead time off-shore imports, and reducing in-transit inventory between our plants and regional distribution centers. We reduced inventories by $330 million from December 31, 2008 to March 31, 2009;

• adjusting planned capital expenditures to between $700 million and $800 million in 2009 from $1,049 million in 2008. Our capital expenditures plan is on target through the first quarter of 2009; and

• pursuing additional non-core asset sales.

We have also implemented quarterly operating plans for 2009 for all of our businesses and functions to adapt to the challenges of the global economic environment.
Considering the current state of the global economy, we expect demand to remain weak in the second quarter with year over year industry declines similar to those experienced in the first quarter.
RESULTS OF OPERATIONS CONSOLIDATED
Net sales in the first quarter of 2009 were $3,536 million, decreasing $1,406 million or 28.5% from $4,942 million in the first quarter of 2008. Goodyear net loss was $333 million, or $1.38 per share, in the first quarter of 2009, compared to Goodyear net income of $147 million, or $0.60 per share, in the first quarter of 2008.
Net sales in the first quarter of 2009 were unfavorably impacted by decreased tire volume of $766 million primarily in North American Tire and EMEA, foreign currency translation of $484 million and a decrease in other tire-related business' sales of $259 million, primarily in North American Tire. These were partially offset by improved price and product mix of $101 million, mainly in North American Tire.
Worldwide tire unit sales in the first quarter of 2009 were 38.4 million units, a decrease of 9.5 million units, or 19.8% compared to the 2008 period. Replacement tire volume decreased 3.8 million units, or 11.2%, due to recessionary economic conditions throughout the world. OE tire volume also decreased 5.7 million units, or 40.8%, primarily in the consumer markets of North American Tire and EMEA due to recessionary economic conditions resulting in lower demand for new vehicles.

Cost of goods sold ("CGS") in the first quarter of 2009 was $3,219 million, a decrease of $742 million, or 18.7%, compared to $3,961 million in the first quarter of 2008, while increasing as a percentage of sales to 91.0% from 80.1% in the 2008 period. CGS in the first quarter of 2009 decreased due to lower tire volume of $628 million, primarily in North American Tire and EMEA, foreign currency translation of $419 million, primarily in EMEA, lower costs in other tire-related businesses of $187 million, primarily in North American Tire, product mix-related manufacturing cost decreases of $60 million and decreased transportation costs of $8 million due to the lower tire volume. CGS also benefited from savings from rationalization plans of approximately $17 million. Partially offsetting these decreases were higher raw material costs of $332 million, increased conversion costs of $225 million and higher asset write-offs and accelerated depreciation of $10 million ($10 million after-tax or $0.04 per share). The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $199 million due to lower production volume. CGS in 2008 also included a gain of $12 million ($8 million after-tax or $0.03 per share) related to the favorable settlement of a transactional excise tax case in Latin American Tire.
Selling, administrative and general expense ("SAG") was $533 million in the first quarter of 2009, compared to $635 million in 2008, a decrease of $102 million or 16.1%. SAG as a percentage of sales was 15.1% in the first quarter of 2009, compared to 12.8% in the 2008 period. The decrease in SAG was primarily driven by favorable foreign currency translation of $72 million, decreased wages and benefits, including incentive compensation of $12 million, lower advertising expenses of $12 million and savings from rationalization plans of $6 million.
Interest expense was $64 million in the first quarter of 2009, a decrease of $25 million compared to $89 million in the first quarter of 2008. The decrease related primarily to lower weighted average interest rates in the first quarter of 2009 compared to the first quarter of 2008.
Other (Income) and Expense was $30 million of expense in the first quarter of 2009, compared to $6 million of income in the first quarter of 2008. Gains on asset sales declined by $32 million in 2009 due primarily to $33 million ($33 million after-tax or $0.13 per share) of gains recognized in 2008. Interest income decreased by $25 million due primarily to lower average cash balances and interest rates in 2009 compared to the prior year. During the first quarter of 2009, we incurred $24 million of foreign currency exchange losses primarily as a result of the weakening Brazilian real and Polish zloty against the U.S. dollar and of the weakening of the Polish zloty against the euro. During the first quarter of 2008, we incurred $8 million of foreign currency exchange losses primarily as a result of the strengthening Chilean peso, partially offset by the weakening of the Turkish lira, both against the U.S. dollar and euro. Higher financing fees in 2008 included $43 million ($43 million after-tax or $0.18 per share) related to the redemption of $650 million of senior secured notes due 2011, of which $33 million was cash premiums paid on the redemption and $10 million represented the write-off of deferred financing fees and unamortized discount.
For the first quarter of 2009, we recorded a tax benefit of $17 million on a loss before income taxes of $365 million. The income tax benefit was favorably impacted by $10 million ($9 million after minority interest or $0.04 per share) primarily due to a recently enacted tax law change. The difference between our effective tax rate and the U.S. statutory rate was primarily attributable to continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets. For the first quarter of 2008, we recorded tax expense of $77 million on income before income taxes of $250 million.
Our losses in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against our net deferred tax assets. However, in certain foreign locations it is reasonably possible that sufficient positive evidence required to release all or a portion of these valuation allowances within the next 12 months will exist, resulting in one-time tax benefits of up to $30 million.
Rationalization Activity
During 2009, $55 million ($47 million after-tax or $0.19 per share) of net charges were recorded compared to net charges of $13 million ($13 million after-tax or $0.05 per share) in the first quarter of 2008. New charges of $57 million represent $44 million for plans initiated in 2009 and $13 million for plans initiated in 2008. The 2009 plans were related to actions throughout the Company. North American Tire initiated manufacturing headcount reductions at two facilities to meet lower production demand and also initiated reductions in salaried selling, administrative and general positions in Akron, Ohio. Additional salaried headcount reductions were initiated at our corporate offices in Akron, Ohio and throughout EMEA. Finally, Latin American Tire initiated manufacturing headcount reductions at each of its two facilities in Brazil.

Upon completion of the 2009 plans, we estimate that annual operating costs will be reduced by approximately $93 million ($59 million CGS and $34 million SAG). The savings realized in the first quarter of 2009 for the 2008 and prior plans totaled approximately $23 million ($17 million CGS and $6 million SAG).
For further information, refer to Note 2, Costs Associated with Rationalization Programs.
SEGMENT INFORMATION
Segment information reflects our strategic business units ("SBUs"), which are organized to meet customer requirements and global competition. Our businesses are segmented on a regional basis.
Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Segment operating income is computed as follows: Net Sales less CGS (excluding certain accelerated depreciation and asset impairment charges) and SAG (including certain allocated corporate administrative expenses).
Total segment operating loss was $176 million in the first quarter of 2009, compared to income of $367 million in the first quarter of 2008. Total segment operating margin (total segment operating income divided by segment sales) in the first quarter of 2009 was (5.0)%, compared to 7.4% in the first quarter of 2008.
Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs' segment operating income. Refer to the Note 10, Business Segments, for further information and for a reconciliation of total segment operating income to (Loss) Income before Income Taxes.

North American Tire

                                              Three Months Ended March 31,
                                                                         Percentage
          (In millions)                2009        2008       Change       Change
          Tire Units                   13.9         17.8       (3.9 )        (21.9 )%
          Net Sales                 $ 1,544      $ 1,997     $ (453 )        (22.7 )%
          Operating (Loss) Income      (189 )         32       (221 )            -
          Operating Margin            (12.2 )%       1.6 %

North American Tire unit sales in the first quarter of 2009 decreased 3.9 million units or 21.9% from the 2008 period. The decrease was due to a decline in replacement tire volume of 1.2 million units or 8.8% in consumer and 27.1% in commercial, due to recessionary economic conditions, and a decline in OE tire volume of 2.7 million units or 49.3%, primarily in our consumer business due to reduced vehicle production.
Net sales decreased $453 million or 22.7% in the first quarter of 2009 from the 2008 period due primarily to decreased tire volume of $289 million, lower sales in other tire-related businesses of $207 million, primarily due to a reduction in the volume and price of third party sales of chemical products, and unfavorable foreign currency translation of $20 million. These decreases were partially offset by favorable price and product mix of $63 million.
Operating loss for the first quarter of 2009 was $189 million compared to operating income of $32 million for the first quarter of 2008. Operating results were unfavorably impacted by increased raw material costs of $137 million, which was partially offset by favorable price and product mix improvements of $60 million, higher conversion costs of $88 million, lower tire volume of $37 million, and lower operating income from chemical and other tire-related businesses of $35 million. The higher conversion costs were caused primarily by under-absorbed fixed overhead costs of approximately $121 million due to lower production volume, which excludes savings from reduced employee post-retirement benefits from the implementation of the VEBA and lower average labor rates. Partially offsetting these negative factors were lower SAG expenses of $8 million. Conversion costs and SAG expenses included savings from rationalization plans of approximately $15 million.
Operating results excluded first quarter net rationalization charges of $28 million and $9 million in 2009 and 2008, respectively. In addition, operating results in 2009 excluded $2 million of accelerated depreciation primarily related to the closure of a retread facility.

Europe, Middle East and Africa Tire

                                              Three Months Ended March 31,
                                                                         Percentage
          (In millions)                2009        2008       Change       Change
          Tire Units                   16.2         20.0       (3.8 )        (18.8 )%
          Net Sales                 $ 1,268      $ 1,950     $ (682 )        (35.0 )%
          Operating (Loss) Income       (50 )        172       (222 )            -
          Operating Margin             (3.9 )%       8.8 %

Europe, Middle East and Africa Tire unit sales in the first quarter of 2009 decreased 3.8 million units or 18.8% from the comparable period in 2008. Replacement tire volume decreased 1.3 million units or 8.6%, mainly in consumer replacement as a result of recessionary economic conditions, while OE tire volume decreased 2.5 million units or 46.9%, in our consumer and commercial businesses due to reduced vehicle production.
Net sales in the first quarter of 2009 decreased $682 million or 35.0% compared to the first quarter of 2008. Unfavorably impacting the 2009 period was lower tire volume of $325 million, foreign currency translation of $293 million, decreased sales in the other tire-related businesses of $37 million and unfavorable price and product mix of $30 million primarily as a result of the significant decline in commercial tire volumes, which have a higher per unit revenue than consumer tires.
Operating loss for the first quarter of 2009 was $50 million compared to operating income of $172 million for the first quarter of 2008. Operating results were unfavorably impacted by increased raw material costs of $111 million, which was partially offset by favorable price and product mix of $23 million, higher conversion costs of $77 million, lower tire volume of $67 million and decreased operating income in other tire-related businesses of $11 million. The higher conversion costs related primarily to under-absorbed fixed overhead costs of approximately $55 million due to reduced production volume. These were offset in part by lower SAG expenses of $10 million and favorable foreign currency translation of $5 million. Conversion costs and SAG expenses included savings from rationalization plans of $6 million.
Operating results excluded first quarter net rationalization charges of $14 million in 2009 and $5 million in 2008. Operating results also excluded first quarter net gains on asset sales of $1 million in 2009 and $18 million in 2008.
Latin American Tire

                                           Three Months Ended March 31,
                                                                    Percentage
               (In millions)        2009       2008      Change       Change
               Tire Units            4.2        5.2       (1.0 )        (19.2 )%
               Net Sales          $  383     $  530     $ (147 )        (27.7 )%
               Operating Income       48        114        (66 )        (57.9 )%
               Operating Margin     12.5 %     21.5 %

Latin American Tire unit sales in the first quarter of 2009 decreased 1.0 million units or 19.2% from the comparable period in 2008. Replacement tire volume decreased 0.7 million units or 20.3%, mainly in consumer replacement as a result of recessionary economic conditions, while OE tire volume decreased 0.3 million units or 16.4%, primarily in our consumer business due to reduced vehicle production.
Net sales in the first quarter of 2009 decreased $147 million or 27.7% from the same period in 2008. Net sales decreased in 2009 due to lower tire volume of $88 million, unfavorable foreign currency translation, mainly in Brazil, of $86 million, and decreased sales in other tire-related businesses of $11 million. These decreases were partially offset by favorable price and product mix of $39 million.
Operating income in the first quarter of 2009 decreased $66 million, or 57.9%, from the same period in 2008. Operating income in 2009 decreased due to increased raw material costs of $63 million, which was partially offset by favorable price and product mix of $57 million, lower tire volume of $22 million, higher conversion costs of $18 million and decreased operating income in other tire-related businesses of $15 million. The higher conversion costs related primarily to under-absorbed fixed overhead costs of approximately $16 million due to reduced production volume. These decreases were partially offset by lower SAG expenses of $5 million. Operating income in 2008 also included a gain of $12 million related to the favorable settlement of a transactional excise tax case.

Operating income excluded first quarter net rationalization charges of $7 million in 2009 and reversals of $1 million in 2008. Operating income also excluded net gains on asset sales of $5 million in 2008. Asia Pacific Tire

                                           Three Months Ended March 31,
                                                                    Percentage
                (In millions)       2009       2008      Change       Change
                Tire Units           4.1        4.9       (0.8 )        (17.0 )%
                Net Sales          $ 341     $  465     $ (124 )        (26.7 )%
                Operating Income      15         49        (34 )        (69.4 )%
                Operating Margin     4.4 %     10.5 %

Asia Pacific Tire unit sales in the first quarter of 2009 decreased 0.8 million units or 17.0% from the comparable period in 2008. Replacement tire volume decreased 0.6 million units or 17.1%, mainly in consumer replacement resulting from recessionary economic conditions, while OE tire volume decreased 0.2 million units or 16.6%, primarily in our consumer business due to reduced vehicle production.
Net sales in the first quarter of 2009 decreased $124 million or 26.7% compared to the same period in 2008 primarily due to unfavorable foreign currency translation of $85 million and decreased tire volume of $64 million. These decreases were partially offset by favorable price and product mix of $29 million.
Operating income in the first quarter of 2009 decreased $34 million or 69.4% compared to 2008 primarily due to lower tire volume of $12 million, decreased operating income in other tire-related businesses of $11 million and increased conversion costs of $7 million. The higher conversion costs related primarily to under-absorbed fixed overhead costs of approximately $7 million due to reduced production volume. Favorable price and product mix of $21 million offset increased raw material costs of $21 million.
Operating income excluded first quarter net rationalization charges of $4 million in 2009. Operating income in 2009 excluded $8 million of asset write-offs related to the closure of our Somerton, Australia manufacturing facility. Operating income also excluded net gains on asset sales of $10 million in 2008.
LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash generated from our operating and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements and our cash flows from financing activities are dependent upon our ability to access credit or other capital.
We continued to experience difficult industry conditions during the first quarter of 2009 due to the global economic slowdown. These industry conditions were characterized by weakness in the demand for replacement tires, particularly in the commercial markets, lower motor vehicle sales and production and recessionary economic conditions in many parts of the world. Our first quarter 2009 results were impacted unfavorably by these industry conditions, resulting in lower sales that prompted us to reduce our global production. As a result of our production cuts, we incurred significant under-absorbed fixed overhead costs in the first quarter.
Considering the current state of the global economy, we expect demand to remain weak in the second quarter with year over year industry declines similar to those experienced in the first quarter, but cannot provide a meaningful industry outlook for the rest of 2009. We have, however, prepared cash flow forecasts for internal use in assessing the adequacy of our liquidity in 2009. These forecasts considered several factors, including projected sales and production volume, estimated selling prices and mix of products sold, cost of raw materials, labor and other overheads, selling, administrative and general expenses, foreign currency exchange rates, changes in working capital, our plan for capital expenditures, and anticipated funding for pensions.
In response to the current recessionary economic conditions, we are pursuing several strategic initiatives intended to strengthen our revenue, cost structure and cash flow. These strategic initiatives include:
• continuing our focus on consumer-driven product development and innovation by introducing more than 50 new tires globally, including several branded mid-tier product offerings. In the first quarter of 2009, we introduced more than 23 new products, such as the Assurance FuelMax in North America and the EfficientGrip tire with Fuel Saving Technology in Europe;

• achieving our four-point cost savings plan target of $2.5 billion, by increasing our continuous improvement efforts, lowering our manufacturing costs, increasing purchasing savings, eliminating non-essential discretionary spending, and reducing overhead and development costs. We have achieved approximately $145 million of cost savings in the first quarter of 2009 and total savings over the life of the plan of $1.9 billion. In association with this plan, we had personnel reductions of approximately 3,800 people in the first quarter of 2009. We also implemented a global salary freeze in the first quarter of 2009;

• reducing manufacturing capacity by 15 million to 25 million units over the next two years;

• reducing inventory levels by over $500 million by the end of 2009 compared with 2008, through the combination of lower raw material costs and the implementation of an advantaged supply chain, primarily in North American Tire and EMEA, by improving demand forecasting, increasing production flexibility through shorter lead times and reduced production lot sizes, reducing the quantity of raw materials required to meet an improved demand forecast, changing the composition of our logistics network by closing and consolidating certain distribution warehouses, increasing local production and reducing longer lead time off-shore imports, and reducing in-transit inventory between our plants and regional distribution centers. We reduced inventories by $330 million from December 31, 2008 to March 31, 2009;

• adjusting planned capital expenditures to between $700 million and $800 million in 2009 from $1,049 million in 2008. Our capital expenditures plan is on target through the first quarter of 2009; and

• pursuing additional non-core asset sales.

At March 31, 2009, we had $1,896 million in cash and cash equivalents compared to $1,894 million at December 31, 2008. Cash and cash equivalents remained consistent when compared to December 31, 2008 due primarily to increased borrowings partially offset by our operating loss and capital . . .