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November 26, 2008 01:00 AM

Michelin preps for tougher times

Kathy McCarron
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    GREENVILLE, S.C. (Nov. 26, 2008)—Michelin North America Inc., because of the current economic upheaval, is looking at some demanding times ahead.

    “We expect 2009 to be a tough year, and we're preparing ourselves for it,” said Dick Wilkerson, the tire maker's new chairman and president. “I think we'll see difficulty in just about every segment.”

    Wilkerson, 60, previously executive vice president of personnel, succeeded Jim Micali at the helm in August.

    “The real impact on the tire business is the miles driven will decrease significantly,” he said, noting that between last November and June, U.S. vehicle owners drove 54 billion fewer miles than in the same period a year before.

    The situation is hampered further by customers' postponing vehicle and tire replacement purchases.

    Despite the faltering U.S. economy, Wilkerson said, “we have not changed our focus on manufacturing here in North America. It's the best way to serve the market.”

    He said the company will continue its $100 million investment in expansion and capital improvements at its North American plants, although the firm in August did cancel a $740 million project to build a plant in Mexico.

    It has become logistically and economically more beneficial to produce domestically, he said, citing increased fuel prices that hike shipping and importing costs; supply chain logistics complicated by offshore sourcing; and increased working capital costs caused by the need to inventory offshore products.

    Currency hedging and responsiveness to market fluctuations also are factors. “So we think there is an advantage to manufacturing here in North America,” he said.

    “We know we have competitors who choose to look at abandoning manufacturing in this market,” he said. “In fact, some of them call themselves an American company, wrap themselves in the flag and say 'Buy American,' while they negotiate with their unions to close plants and 'offshore' those jobs.

    “We consider ourselves an American company. We have 22,000 employees in North America. We are investing in North America. We see ourselves serving the American worker the best of all the tire companies.”

    Regarding the cancellation of the Mexican plant project, Wilkerson said the decision was “based on significant market changes that aren't temporary.”

    The factory was designed to meet previously foreseen growth in the U.S. market for large sport-utility vehicle and performance tires through 2013 and beyond.

    “We don't see that anymore,” he said.

    Instead the company will focus on improving productivity and capacity at its existing North American plants.

    The tire maker has had some back orders in high-performance and recreational vehicle tires.

    Michelin also is expanding its Lexington, S.C., off-the-road tire plant to meet shortages in the giant tire market.

    “We're expanding significantly in the Lexington facility,” according to Wilkerson.

    “That plant is hugely important to our company. It is already one of the largest giant earthmover tire plants in the world and will be by far the largest when we finish the current expansion,” he said.

    However, Michelin is “adjusting its manufacturing schedule” at some plants because of the recent hurricanes in Texas that led to some raw material shortages and to previously planned inventory adjustments.

    Despite consumer cautiousness this past year, “we've picked up market share overall, including the Michelin brand,” Wilkerson said.

    “In the past, Michelin has been—I'm not going to say insulated—but the brand has maintained its market share and growth of its market share in down times, typically. ... People whose income (is) sustained can make a choice of value over instantaneous price.”

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