John Moylan reports on the deal

The deal will create the world's largest tyre company, surpassing rivals Bridgestone and Michelin.

"The automobile industry is going global, and with their combined presence Goodyear and Sumitomo will have a much larger footprint than any of the other tire companies," claimed Goodyear's chairman, Sam Gibara.

The two companies will form a number of joint venture companies in the USA, Japan, and Europe and create two joint servicing companies for global purchasing and tyre technology.

Goodyear says the deal will boost its sales by 20%, or $2.5bn (£1.5bn), and increase profits by $300m-$360m per year.

Goodyear is paying Sumitomo $936m for its stake.

The new joint ventures are expected to become operational on 1 September. Goodyear will have a 75% stake in the North American and European joint operations, while Sumitomo will hold 75% of the two joint ventures in Japan.

Tyre industry consolidation

The deal could be the start of a huge consolidation of the world's tyre industry.

The two companies are already working closely together. Sumitomo produces tyres under the Goodyear brand name in Japan while Goodyear makes tyres for Sumitomo's operations in the United States.

The huge alliance would cement Goodyear's dominant position in the United States and help it to benefit from Sumitomo Rubber's strong presence in both Japan and the rest of Asia.

It would also give Goodyear a higher profile in Europe, where Sumitomo owns Dunlop and markets under the famous brand name.

Mutual benefits

The union would provide the struggling Japanese firm - whose operating profits fell almost 41% in the half year to June from the same period a year earlier - with a strong and stable partner as Japan grinds through its longest economic downturn of the post-war period.

Combined sales of the two companies would amount to 22.6% of the world's tyre market and total more than two trillion yen ($17.86bn).

Sumitomo Rubber was originally a subsidiary of the Dunlop group, which it later acquired. The company is Japan's third-largest maker of automobile, bus, and truck tires.

Analysts said both companies needed the link in order to remain competitive with Bridgestone and Michelin, the world's next largest tyre makers.

"Sumitomo needs Goodyear for survival," said Takaki Nakanishi, a senior analyst at Merrill Lynch Japan.

"And Goodyear obviously needs Sumitomo for further expansion into Europe, as well as Japan and Asia."

Goodyear shares were up more than $2 in pre-trading on the New York Stock Market. The company also reported a 22% increase in profits in 1998 to $668m.