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January 14, 2005 01:00 AM

Optimistic: Jugier sees good times for Michelin in China

Alysha Webb
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    BEIJING—Michelin (China) Investment Co.´s sales have taken a hit from the slowdown in vehicle sales in China, according to Chairman Eric Jugier, but he remains optimistic about the future.

    "There are two different scenarios," he said. "Today is a crisis and we will continue to see sales fall and not rebound for a couple of years, or this is just temporary. (But) we sell more tires in the retail market, and in both cases you see the replacement market size continuing to increase."

    After seeing 30-percent annual growth in previous years, Jugier said Michelin´s sales growth for 2004 and the next several years probably will slow to around 10 percent.

    Nonetheless, Michelin is forging ahead with its capacity expansion in the north China city of Shenyang, though Jugier declines to give specific numbers.

    Michelin sells three brands of tires in China—Michelin, BFGoodrich and Warrior—which together equate to around 24 percent of the passenger car replacement market in the country, he said.

    The Warrior brand name belongs to Shanghai Tire & Rubber Co. Ltd., China´s largest passenger tire maker. Michelin acquired a 70-percent stake in the company in March 2001, including rights to the Warrior name for passenger tires.

    While Michelin sells "a few million" tires a year in China, according to Jugier, the firm´s Chinese business accounted for less than 5 percent of its 2003 sales of $17.4 billion. The nation, however, represented the fastest growing market in the world for Michelin.

    That growth is due to the rapid expansion of China´s automotive market. Total vehicle sales rose by 30 percent in 2003 over 2002, with passenger car sales up 70 percent to more than 2 million units, according to Automotive Resources Asia.

    This past year, growth began to slow in China´s automotive sector in May because of a government measure aimed at cooling an overheating economy. But the country´s vehicle sales still rose by nearly 20 percent this past year, and in the coming year should also see double-digit growth.

    In the slower sales environment, Jugier is counting on a superior distribution system and better customer service to keep Michelin´s business growing. In 2002, Michelin began establishing branded retail outlets for passenger car tires in partnership with its retailers. The concept was novel in China´s tire aftermarket.

    Besides training, Michelin offered advice on equipment, software, and layout at no cost, as well as a certification program.

    Michelin has more than 1,000 outlets nationwide, including 145 "premium" TirePlus stores, a rank assigned to those with the best locations, most advanced products and best facilities.

    The French tire maker also sells its tires in car accessories shops in a program dubbed the Michelin Business Acceleration Program—abbreviated as MBA. There are 40 MBA shops in China.

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