Michelin & Cie, Europe’s largest tiremaker, intends to implement new labor rules at its French factories to help it adjust capacity and avoid firings as the region’s car market heads for a sixth straight year of decline.
The agreement, which has been adopted by three of Michelin’s 17 plants, allows the company to ask employees to work additional days to compensate for unworked days when production is low, Chief Executive Officer Jean-Dominique Senard said today at a press conference.
“I’m very happy with this agreement,” Senard said following the company’s shareholders meeting in Clermont-Ferrand, where it’s based. “It would be wonderful to have it signed by all remaining factories.”
Michelin is seeking more growth outside Europe and marketing specialty tires used on large vehicles such as mining equipment amid a six-year slump in its home region. The slowdown is prompting the tiremaker to look at ways to restructure operations in Europe, where about 59 percent of its 107,000 workers are located. Michelin employed about 24,000 people in France at the end of 2012.
Lower demand has reduced utilization rates at Michelin’s European plants to about 50 percent to 60 percent for truck tires and about 70 percent for passenger cars and light trucks, Senard said. One way to address overcapacity is to increase labor flexibility, the executive said, ruling out closing plants in France in the immediate future.
A shutdown is “not on the agenda yet,” Senard said. “All the options are under scrutiny. I don’t know how many factories there will be in Europe in 20 years. What I know is that those that will be there will be competitive.”
Michelin today reaffirmed its forecast to keep 2013 profit “stable” as growing demand for high-margin tires for mining vehicles helps offset declining demand in Europe.
“Mining markets will have strong growth” this year, Chief Financial Officer Marc Henry said at the shareholders meeting. “The European market will decrease,” while emerging markets such as Brazil will be “strong.”
The market for replacement car tires surged 21 percent in Brazil in April, rose 11 percent in China and advanced 5 percent in Europe, while declining 3 percent in North America, the company said on its website. Through the first four months of 2013, industrywide sales of replacement car tires are up 11 percent in both Brazil and China and down 6 percent in Europe and 2 percent in North America.
Michelin shares rose as much as 4.2 percent to 70.92 euros and were near that level at 3:02 p.m. in Paris trading. The stock has slipped 1 percent this year, valuing the company at 12.9 billion euros ($16.6 billion).
The tiremaker also stuck to its forecast for an increase in replacement sales of giant tires for mining vehicles. The company also reiterated a target of increasing a return on capital employed to more than 10 percent and generating positive free cash flow this year.
Six of the eight members on the Michelin board of directors saw their mandate expire today. Two members of the board were elected for a new four-year term, while four new members entered the board.
The French manufacturer’s first-quarter revenue fell 8.1 percent from a year earlier to 4.88 billion euros ($6.29 billion), as demand for tires for earthmovers, tractors and planes declined.