Michelin to Speed Up Savings Plan to Match Rivals’ Profitability

  • Spending reductions be focused on job cuts, reorganization
  • Raw-material costs to be cut by as much as 200 million euros

Michelin & Cie. plans to accelerate cost savings through 2020 in a bid to match rival tire manufacturers’ profitability, Chief Financial Officer Marc Henry said.

Michelin is targeting spending reductions of 1.2 billion euros ($1.36 billion) from 2017 through 2020 with job cuts, shifting production outside of Europe, reducing the amount of raw materials used per tire and introducing software to make manufacturing and inventory handling more efficient, the French company said Monday in a statement for a conference with analysts and investors. That represents savings of 300 million euros a year, up from 200 million euros between 2012 and 2016.

“Our costs are traditionally higher than our competitors,” Henry said in a phone interview. “We have to always be strong on this matter.”

Michelin, Europe’s biggest tiremaker, has been restructuring operations in the region to compete with cheaper tiremakers. Sales growth has been held back by vehicle delivery slowdowns in China, Brazil and Russia, and by a strong euro, which lowered the value of revenue earned in other currencies. First-quarter sales held steady as car-market gains in the U.S. and in Europe made up for drops elsewhere. Michelin said separately Monday that it’s planning on a 20 percent jump in tire-business revenue by 2020.

Continental Comparison

The French company is targeting operating margins, excluding one-time items, of 11 percent to 15 percent of revenue for car tires and 9 percent to 13 percent for truck tires during the planning period. The figures were within those ranges in 2015. That compares with tire-business earnings before interest and taxes at 20 percent of revenue last year at Hanover, Germany-based Continental AG.

Michelin rose 0.1 percent to 92.83 euros at the close in Paris on Monday. The stock has gained 5.6 percent this year, valuing the tiremaker at 16.9 billion euros.

The tiremaker plans to save as much as 550 million euros in overhead between 2017 and 2020, while it will reduce raw-material costs by 150 million euros to 200 million euros, partly by developing lighter tires.

“The competitiveness of the group needs to compensate for wage inflation” driven by factors including a high employment rate in the U.S., general price increases in Brazil, salary increases in China and union agreements in Germany, Henry said. Michelin will reduce its workforce by not replacing people who leave, rather than through large-scale firings, it said.

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