MILAN—Pirelli & C. S.p.A. is targeting savings of nearly $570 million over the coming three years, the company disclosed this week as part of its 2020-22 industrial plan.
The cost savings are designed to help drive the firm's operating ratio up by a percentage point or two to 18 percent-19 percent over the 2019 result.
The three-year plan aims to strengthen Pirelli's business model through three key programs of cost competitiveness, commercial development and technology-based innovation, Marco Tronchetti Provera, executive vice chairman and CEO, said in presenting the plan.
Launched in the final quarter of 2019, the cost containment program is expected to deliver $200 million in savings in 2020, followed by an additional $365 million in 2021-2022, Provera said.
As part of the initiative, Pirelli is consolidating its production footprint by reorganizing its Brazilian operations and converting production in Bollate, Italy, to high-performance Velo bicycle tires.
In Brazil, the previously disclosed restructuring will continue with the closing of a plant in Gravatai and the transfer of motorcycle tire production to a factory in Campinas, Sao Paulo.
In Italy, Pirelli will discontinue the production of standard car tires at its Bollate plant and move the production to Russia, Tranchetti added.
The Italian tire maker expects savings of $175 million from the restructuring of its operations, of which around $45 million will be achieved in 2020.
Pirelli also said it would initiate a series of measures to optimize its product range.
"A large part of our cuts are coming from product costs, and this is where we will leverage technology, modeling (and) simulators," Tronchetti said. "We are going to cut the launch of new products by 30 percent."
Here, the company will aim to optimize the range and specifications of its tires while moving to "simplify and rationalize" tire components structurally. This move should yield savings of $175 million, of which $55 million is to be achieved this year, the company said.
Using advanced marketing tools and strictly controlling overheads, Pirelli also said it expects to save $110 million in selling, general and administrative expenses, starting with $45 million in 2020
Another $100 million of savings, $55 million this year, will be achieved through the re-engineering of processes and digital transformation, as well as by increasing the variable component on overall salaries.
By the end of the three-year period, Pirelli said it expects to have 18 plants in operation, with more than 80 percent of its production capacity located in low-cost countries.
Of those plants, nine will be "fully high value"—producing high-rim size tires—with six of the plants equipped with new robotized machinery.