GREENVILLE, S.C.—Michelin North America Inc. has high hopes that new products, marketing campaigns and production and distribution strategies will help it achieve another upbeat year, despite dim prospects for the U.S. tire market.
While other companies may be looking toward outsourcing from Asian markets to reduce production costs, the North American unit of Michelin said it plans to continue to entrench itself in the regional market.
The French-owned tire maker has 19 plants and 22,300 employees in North America and has no intention to diminish that base, according to Jim Micali, Michelin North America chairman and president, who is retiring in August.
“We're going to make the footprint work and work well,” he said, while at the same time admitting that the region “is not an easy environment” in which to operate.
He pointed to Michelin's investment in North American manufacturing and research and development, including more than $1.2 billion for plant expansions and upgrades, to support his statement. “The investment shows we will be a very viable presence in North America in years to come.”
North America key market
Michelin North America accounted for 33 percent, or $8.1 billion, of parent Michelin's global sales last year, including $7.6 billion to customers in North America.
Micali said while the U.S. dollar declined in value, the North American division's unit sales increased.
Despite a raw materials cost burden anticipated to reach about $300 million for its worldwide operations this year, Michelin expects continued improvements in net sales and operating income. Emerging countries drive tire market prospects, and the company continues its goal to improve industrial productivity and cost reduction, the firm has said.
The tire maker is less optimistic about the North American market conditions, according to Micali. New car production is expected to lag, and the passenger and light truck tire replacement market is predicted to be nearly flat with a slump in the commercial tire market.
Micali cautioned, though, that the market predictions were based on gas prices during the end of last year, which since have escalated. “If people drive less (because of rising gas prices), it will have an impact on the tire market,” he said.
Add to that a devaluing U.S. dollar and lower-cost imports from Asia, and Michelin North America is banking on product differentiation to improve its prospects. The company will continue to promote products such as the X One so-called “super single” truck tire, the Axiobib agricultural tire featuring the firm's Ultraflex technology launched last year and several energy efficient tires. The company's units also are revamping distribution and marketing programs to improve sales and productivity.
Michelin admitted it had a poor performance in fill rates last year and vowed that improved service was its No.1 priority this year, according to Scott Clark, Michelin Americas Small Tires' chief operating officer. He said the company said it underestimated the strength of the market in 2007 and was not able to satisfy demand, especially for light truck tires.
Michelin is addressing that problem by boosting North American production capacity, including building a plant in Guanajuato, Mexico. The company also is launching its Nexus program, in which distribution centers provide short-term sales forecasts and local lead time requirements directly to a plant.
“It will help us do a better job to make the right stuff and get it more quickly to the distribution centers and customers,” Clark said. He admitted the old way of forecasting demand didn't reflect real-time situations, such as the timing of local tire promotions.
MAST also plans to implement other programs it test-marketed last year to improve dealership sales of its Michelin brand.
The firm's truck tire business will concentrate on its X One line this year, said Marc Laferriere, vice president of marketing for Michelin Americas Truck Tires. The company is expanding the line to include aggregate haulers and, particularly, recreation vehicles, which he said is a substantial part of the firm's business.
The company also is offering a variety of retread designs for the X One, improved accessibility of replacement tires around the country and an expanded dispatch service for roadside assistance for X-One-equipped trucks.