Michelin: New Rubber Hits The Road
Almost a half-century ago, Groupe Michelin sparked a revolution in the tire industry when it introduced the steel-belted radial. Now it's hoping for another coup with the new PAX "run-flat" tire, which can keep rolling smoothly up to 120 miles even if completely deflated by a puncture. Michelin and Honda Motor Co. (HMC ) aren't commenting, but industry sources say that in September the tire will for the first time become standard equipment on a mass-market vehicle: Honda's Odyssey, the No. 2-selling minivan in the U.S.
It's the French tiremaker's biggest new product push since the radial. Certainly, the appeal of a run-flat is clear to any driver who has changed a tire on the shoulder of a busy highway or wished the spare didn't take up so much room in the trunk. Already, Michelin is predicting that the PAX will one day dominate the $70 billion-a-year tire market, much as radials now command nearly 100% market share in the industrialized world. "Like the radial, the PAX system is a groundbreaking innovation," says Chairman Edouard Michelin.
But Michelin, the global No. 1 tiremaker, has some catching up to do. Until now the dominant run-flat design has been the SST, or self-supporting tire, so called because its reinforced sidewall bears the car's weight in case of a flat. Goodyear Tire & Rubber Co. (GT ) developed the first such tires, but most manufacturers, including Michelin, have their own versions. SSTs account for over 90% of the estimated 3 million run-flat tires sold annually. They're standard equipment on BMW's 6 Series and a popular option on BMW's hot-selling Mini Cooper. "SST is really where the volume is," says William M. Hopkins, global vice-president for product planning at Goodyear.
Michelin is gambling on a different idea. The PAX system, developed at the company's headquarters in Clermont-Ferrand, France, has a tough but flexible rubber ring attached to the wheel rim; it bears the car's weight if the tire goes flat. That eliminates the need for thicker, more-rigid sidewalls, which in turn improves handling and fuel economy. When flat, the PAX can run more than twice as far as an SST. In Europe it sells for about $150, or up to 25% more than a traditional tire. But SSTs cost about as much. While Michelin is the only tiremaker now building the PAX, it has licensed the design to Goodyear, Pirelli (PIREY ), Sumitomo (SSUMF ), and Toyo Tire & Rubber. If the PAX takes off, Michelin will pocket a share of every sale.
CALLING ALL SUV OWNERS
There's a big catch, though: Whereas SSTs can be put on most existing cars, the PAX works only on vehicles with a specially designed chassis and wheels. "[PAX] is a little too complex for the marketplace," says Mike Martini, original equipment sales president at Bridgestone/Firestone North American Tire LLC. And because a PAX-modified car can't accept traditional tires or SSTs, a customer with a flat must find an authorized PAX outlet to repair or replace the tire. Michelin says it has 1,000 PAX dealers and repair outlets in the U.S., including round-the-clock service for motorists stranded in remote spots. A similar network exists in Europe.
European car buyers have been wary. Audi, the only auto maker now offering the PAX on passenger cars, says few customers have bought them as an option. Renault used the PAX as standard equipment on a limited series of its Scénic minivans but discontinued the series after selling about 30,000 vehicles. What's more, nearly one-third of buyers insisted on having a spare tire and jack in the car.
Michelin is really pinning its hopes on the U.S. market. Ordinary SSTs aren't strong enough to support heavy sport-utility vehicles and pickups, but the PAX works just fine on them. Honda's choice of the PAX for its Odyssey minivan is a big opening to this market. Adding to Michelin's confidence are its finances: In the first half, sales grew 6.4%, to $9.4 billion, and profits doubled, to $396 million.
Michelin's radial, patented in 1946, paid off handsomely. The PAX still has to prove itself. But if it does, Michelin could have a smooth ride for years to come.
By Carol Matlack in Paris