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Digital Edition
Digital Edition
Published on September 5, 2005

Bridgestone sees opportunities abounding

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Date Published September 5, 2005
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Bridgestone Corp.'s chairman is bullish about the company's future, despite certain ``challenges,'' like huge raw material cost increases.

``This is a time of tremendous opportunity for Bridgestone, and we are moving aggressively to capitalize on that opportunity even while addressing huge challenges,'' Shigeo Watanabe, chairman, president and CEO of the Japanese company, said in a letter published in the firm's 2004 annual report.

Five years removed from the largest tire recall in tire industry history, Bridgestone is pushing for more market share, backed by a $2 billion-plus capital spending plan and coupled with steady earnings growth.

One aspect of Bridgestone's strategy that separates it from its major competitors is its belief in vertical integration.

While major competitors Goodyear and Groupe Michelin are moving away from certain captive supply sources, Bridgestone is investing heavily in in-house supplies. Those include carbon black, steel and textile cord, and natural and synthetic rubber. The company also is solidifying its captive retail distribution networks in North America, Europe and Japan.

In the annual report, Watanabe said that while the firm will continue to buy most of its raw materials from third-party sources, it will upgrade its in-house capabilities in developing, producing and using those materials. ``That will help us create better tires, and it will help ensure reliable access to crucial raw materials,'' he wrote.

The company didn't respond to requests for comment, and its U.S. operations referred all questions to Japan.

Bridgestone has committed more than $360 million through 2007 to enhancing its raw materials supply situation. Included in that are the recent purchases of Goodyear's NR plantation in Indonesia, a new carbon black plant in Thailand, two steel cord factories in China, and expansions of steel cord capacity in Japan and the U.S.

Noting demand for passenger tires in industrialized nations is shifting toward high-performance tires and tires of larger rim sizes, Watanabe said the tire maker will deploy production resources to accommodate that fact.

The firm also will expand production capacity to handle higher global demand for auto tires, especically in emerging markets. And an increase in truck tire consumption will require further capacity expansion in that sector.

The amount of new daily capacity coming on stream for the tire maker in the next two to three years is roughly 45,000 units. That's equivalent to as much as $1.5 billion in new sales, depending on the mix.

The firm is financing much of its growth through adequate cash flow and controlled debt. The firm's interest-bearing debt declined last year by 2 percent. The debt-equity ratio stood at 0.34 at year-end, the lowest it's been in five years.

Short term, Bridgestone sees sales rising steadily this year and next, but the unstable raw materials situation likely will keep a lid on earnings gains, the company said in its half-year results.

Bridgestone also is betting heavily on China, where it has three tire plants and a steel cord factory plus a second steel cord facility under construction. The firm has invested $500 million in China since 2002.

* * *

Bridgestone capital investment priorities

* Deploying production to serve the shift in demand for auto and light truck tires in industrialized markets toward high-performance and larger diameter rim sizes.

* Expanding capacity to serve the growth in global demand for passenger tires, especially in emerging markets.

* Expanding capacity to serve the increase in worldwide consumption of truck and bus tires and for off-the-road tires.

* Boosting capabilities in producing raw materials for tires.