Bridgestone: A Recovery on the Skids?

A 48-hour blaze at the tire maker's premeir factory in Kuroiso could slow down what looked like a solid return to form

Things were just starting to look up for Bridgestone Corp. Three years after its Firestone subsidiary was forced to recall 6.5 million flawed tires, Bridgestone's sales had climbed back to pre-recall levels, and profits were surging. Then, on Sept. 8, disaster struck: A fire tore through Bridgestone's plant in Kuroiso, 100 kilometers north of Tokyo. While Bridgestone's profit recovery hasn't gone up in smoke, the calamity will take its toll on the bottom line. "It's hard to assess how hard we've been hit, but there's no doubt that it's huge," Shigeo Watanabe, Bridgestone's president, told reporters on Sept. 10.

Kuroiso accounts for 13% of the company's capacity in Japan and nearly 5% of its global production. Worse, the 21,000 tires made there daily are among Bridgestone's highest-quality -- and highest-profit -- products. Lost production at the factory could cut Bridgestone's earnings as much as $26 million a month until the plant reopens, estimates Merrill Lynch Japan analyst Kei Miyashita.

It's still not clear what caused the 48-hour blaze, which forced the evacuation of 5,000 local residents. But its effects extend beyond Bridgestone to the country's auto makers. Toyota, Nissan, and Isuzu all rely on the Kuroiso plant for tires to outfit their vans and trucks. Bridgestone only has 10 days' worth of inventory. Isuzu Motors Ltd. has already cut production of some trucks by 20%.

Most analysts are confident, though, that Bridgestone won't suffer lasting effects from the fire. The company "has very good fundamentals, so I think it'll recover quite soon," says Morgan Stanley Japan analyst Shinji Kakiuchi. And the company has shown itself to be resilient. The recall of Firestone tires, which were implicated in fatal accidents involving Ford Explorer SUVs, would have driven many companies to the brink. But Bridgestone paid out more than $1 billion for the recall and to settle lawsuits without even going into the red.

Even so, problems have been multiplying of late. The price of natural rubber is up, which is expected to add $225 million to the company's 2003 costs. And the value of Bridgestone's pension assets has declined, which will cost it an additional $130 million this year. The fire's likely impact on Japanese production will weigh more heavily on the bottom line than a mishap in some foreign facility would have. The company dominates the local tire market, with a 45% share. Japan accounted for a third of Bridgestone's sales and three-quarters of its operating profits in 2002.

Bridgestone's eight other plants in Japan will take up some of the slack. But with Japanese operations running near capacity, "it may be difficult to cover everything," says Executive Vice-President Isao Togashi. Moreover, other factories can't produce many of the specialized products made in Kuroiso, such as studless snow tires, a big seller during the cold winter in northern Japan.

Bridgestone's rivals aren't crying. Shares of Japan's No. 2 tire producer, Sumitomo Rubber Industries Ltd., and No. 3, Yokohama Rubber Co., shot up more than 5% in the two days after the fire broke out. Bridgestone's stock, though, fell by 3.8%. Bridgestone may have to wait a while before it can continue to retread its profits.

By Irene M. Kunii in Tokyo

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