French Auto Suppliers Post Profit Drop on Europe Slump

Michelin & Cie and Faurecia SA reported a drop of more than 10 percent in first-half profit as automakers pushed prices lower on slumping demand in Europe.

Michelin, Europe’s largest tiremaker, said operating profit excluding one-time items declined 13 percent to 1.15 billion euros ($1.52 billion). Faurecia, the region’s biggest maker of car interiors, posted a 16 percent decrease in operating profit to 256 million euros.

The two French auto suppliers are cutting expenses in Europe, where the market is headed for its sixth straight annual decline, and expanding in Asia and other growth areas. Faurecia today forecast that car production in its home region will decline 3 percent to 4 percent this year, spurring automakers to seek lower prices on the parts they purchase.

“The contraction affects the whole chain,” said Jean-Francois Belorgey, who runs Ernst & Young’s auto sector. “European suppliers are probably more affected than others because they have a bigger European industrial base in their business that supplies more largely the region’s carmakers. This situation is set to continue at least into 2014.”

Faurecia, based in Nanterre, plunged as much as 1.66 euros, or 8.1 percent, to 18.73 euros and was down 5.6 percent as of 1:02 p.m. in Paris trading. Clermont-Ferrand-based Michelin dropped as much as 4.10 euros, or 5.3 percent, to 72.82 euros and was down 2.8 percent.

Cutting Spending

The slowdown in Europe has prompted Michelin to look at ways to trim costs in the region, where about 59 percent of its 107,000 workers are employed. Michelin said on June 10 that it would end production of heavy-truck tires at a factory in Joue-les-Tours, about 250 kilometers (155 miles) southwest of Paris, by the end of 2015. About 730 of the plant’s 930 employees will lose their jobs.

Faurecia is also reducing fixed costs and the measures put in place will yield savings of 50 million euros this year and 100 million euros in 2014, the company said. The moves will lead to 90 million euros in charges in 2013, including 39 million euros booked in the first half.

“We don’t expect a rapid recovery in Europe,” Faurecia Chief Executive Officer Yann Delabriere said. “We have to adjust fixed costs to the new level.”

The French manufacturer reiterated its 2013 targets which include positive net cash flow before restructuring charges of 120 million euros for 2013. Faurecia is forecasting full-year revenue between 17.8 billion euros and 18 billion euros and an “improvement” in operating income.

Slumping Demand

Michelin also stuck to a target of keeping 2013 operating profit “stable” and holding global volumes “steady.” The company expects lower rubber prices to boost earnings in the second half as markets improve and sales volumes show “modest” growth. For the year, the company sees lower prices for raw materials adding 350 million euros to operating profit.

Demand for replacement tires for cars and light vehicles slumped 4 percent in Europe in the first half because of the “uncertain” economy, Michelin said. That led to a 5.3 percent drop in car-tire operating profit to 550 million euros.

The company plans to invest 1.6 billion euros to 2.2 billion euros a year through 2015 to fuel expansion outside its home region and to reach an operating income of around 2.5 billion euros in the same year.

Faurecia, which last year bought Ford Motor Co.’s car-interior business in Saline, Michigan, has a goal of becoming one of the top five industry suppliers in North America with $7 billion in yearly sales there by 2016. The company plans to limit future expansion of its production network to Asia, the CEO said today, adding that the company was closing in on an agreement with China’s SAIC Motor Corp.