Michelin rolling along

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Michelin rolling along
By Jenny Munro
BUSINESS WRITER
The Greenville News

When Jim Micali looks out one glass wall in the lobby of Michelin North
America's headquarters in Greenville, he views the Blue Ridge Mountains. When
he looks out the glass at the other end of the building, he sees Michelin's
present and its future --- vehicles rolling down Interstate 85, some riding on
the company's tires but many more customers to win.

Micali, president and chairman of Michelin North America, wants an even bigger
share of the domestic tire market. His boss, Eduoard Michelin, thinks that's
possible in spite of an uncertain economy and tough times in the tire industry.
As chairman of Michelin Group, he said the company's future is bright around
the world, which bodes well for the approximately 10,000 workers Michelin North
America employs in South Carolina.

The global tire maker, based in France, has just opened a plant in Mexico to
replace a couple that closed several years ago. But the Mexican plant is not a
precursor for moving North American operations south of the border, said
Michael Fanning, vice president of public relations and government affairs for
Michelin North America.

Michelin said that the company that bears his name plans to focus its energies
heavily on the sport utility and performance tire markets, growing segments in
the tire industry and crucial to Michelin's continued success.

"That's the right place for Michelin," he said.

Micali agreed.

"The mass market is diminishing," he said. "There are two significant growing
markets --- SUV and performance tires. That's good for us because we want to
concentrate on the high end."

"When I start to buy tires, I go after the best," said Jim Osborne, a
Greenville-area resident who bought a set of tires for his SUV and for a
passenger car within the past year. "I can't look at a tire and decide so I go
by reputation. I put Michelin up there at the top because they seem to do
things right and care about what their customers think. They may be expensive,
but I've never had any trouble."

Michelin's North American operations are a major part of the global company's
growing worldwide presence. The company invests about $100 million a year in
the United States, Canada and Mexico, Michelin said.

Staying in the United States

Although U.S. workers have watched many textile and apparel companies,
electronics companies and others move their production facilities out of the
United States, they don't need to fear that with Michelin, Fanning said.

"Absolutely, unequivocally, no," he said. "We have invested more than $2
billion in our South Carolina operations since 1975 and are committed to
manufacturing in the Palmetto State.

"Let's also recall that since Michelin announced expansion plans in South
Carolina in August 1999, we have opened a semi-finished rubber plant in
Anderson County and an agricultural tire facility in Lexington. We have also
announced plans for expanding our earthmover tire plant in Lexington and
consolidated some of our so-called C3M tire-building operations from Reno,
Nevada, to Greenville."

Fanning said Michelin closed the two Mexican plants in 2000 for
"cost-competitive reasons. Despite repeated attempts over many years, we were
unable to achieve the necessary cost reduction and productivity improvements at
the plant."

The plant at Queretaro was reopened because of growing tire demand in Mexico
--- the eighth largest tire market in the world --- and new labor agreements
that allowed the plant to be cost-competitive, he said.

Dan Zielinski, director of the Rubber Manufacturers Association, said, "Several
of our members have operations and plants all over the world. I don't know that
we've seen a trend" with U.S. operations moving to lower-cost countries.

Industry improving financially

The industry as a whole appears to be turning the corner and becoming stronger,
Zielinski said.

"Last year was certainly a bad year. It may be that the worse part is over," he
said. "It's not that it's booming, but the outlook has improved."

April statistics showed that original equipment passenger tire shipments were
up 12 percent from a year ago while replacement shipments were up 1.9 percent,
according to Rubber & Plastic News, a trade publication. Light truck tire
shipments --- which includes SUVs --- were up 41.78 percent while replacement
shipments were up 22.2 percent. Heavy truck tire shipments were down 9.9
percent but are in better shape than earlier in the year.

Zielinski said that U.S. passenger tire replacement shipments totaled 191
million units in 2001. Industry officials estimate that 186 million units will
be shipped this year and 196 million units in 2003.

Michelin --- both internationally and in North America --- is part of the
overall market improvement, officials said.

The North American growth includes the consolidation of its C3M technology,
used primarily for small batches of high-performance tires, in Greenville as
well as the expansion of plants in Lexington and Oklahoma.

Michelin also is focusing heavily on the replacement tire market --- about
two-thirds of the $70 billion tire market, Michelin said.

Research and development is an important issue for the company. Michelin's
research equals 4.23 percent of its sales.

A recent Michelin R&D effort was the reformulation of the tires used on the
Concorde plane, a process completed in eight months. Also, the company
developed the wheel system for the new Segway scooter, a personal
transportation system.

Michelin, like other tire companies, has been fighting a dramatic downturn in
the commercial truck tire market.

Financial results in 2001 were weak, and "our object is to do better in 2002
than in 2001," Michelin said.

Michelin worldwide net earnings dropped last year by 28.4 percent to $273
million although sales were up slightly to $13.7 billion from $13.4 billion the
previous years. Volume was down, but higher prices reduced the impact.

"Last year, we were able to raise our prices and grow our market share because
quality is more than ever in demand in the North American market," Michelin
said.

The Firestone recall of 13 million tires used on Ford Explorers was a "wake-up
call in the minds of many consumers," Micali said. "They are looking for brands
they trust. There is a flight to quality."

The Bridgestone/Firestone fallout allowed Michelin to sell 275 million to 300
million additional tires and gain one to one and a half points in market share,
Micali said.

Michelin fighting to improve market share, financial results

Michelin's 2002 worldwide goal is to obtain an operating margin --- its profit
margin --- between 6.7 percent and 7.4 percent, up from 6.6 percent last year.
The company is moving in that direction so far this year, Micali said.

Micali said Europe and North America are Michelin's largest markets ---
providing 47.4 percent and 39 percent of sales, respectively --- but the
company has a presence in all tire markets, he said. Asia provides 7.1 percent
of Michelin's sales. The company moved into China with a small plant and now
owns a 70 percent stake in Shanghai Tire and Rubber. It's the leader in the
Chinese market for radial passenger car tires. The Group also acquired two
plants making radial tries from Tofan in Romania and has half the market in
that country.

Michelin, with 80 manufacturing facilities in 20 countries, produces 844,000
tires a day for all types of vehicles from bicycles to cars, from motorcycles
to the space shuttle, Micali said. The global company employs 130,000 workers
worldwide while Michelin North America employs about 26,500 employees --- about
10,000 of those in South Carolina.

Michelin's European operations are completing a restructuring and the North
American operations are in the midst of one. By the end of 2003, Michelin North
America expects to shed 2,000 positions and cut annual operating cost by $200
million. Other than the job cuts announced --- which will be handled primarily
through attrition and voluntary separations --- no additional job cuts are
anticipated, Michelin said.

"We are in a competitive market," he said. "We can't wait to take action. But
I'm very confident of the future of our operations in North America."

Also, the company recently sold four of its distribution centers, including one
in Laurens, and contracted the management of all 18 centers to a third party
operator. That plays into Michelin's efforts to restructure its North American
operations although it was not part of the announced restructuring. The Laurens
test track on 2,500 acres of land was not part of the sale or change in
operations.

Michelin ranked No. 3 in original equipment market share in North America in
the year 2000. It held 21.6 percent of the market while Goodyear led with 33.3
percent and Bridgestone followed with 27.4 percent. In the much larger
replacement market, Michelin was No. 2 at 21 percent. Goodyear again was the
leader with 30 percent of the market and Bridgestone was No. 3 at 17 percent.

These figures came out before the Firestone recall of 13 million tires. When
Michelin looks at other parts of the world, he sees varying level of activities
The Asian market represents about 7 percent of Michelin's sales, but each
country is different, he said.

China is now a major focus with its improving economy, he said. The country is
planning to build 8,000 kilometers, or about 4,960 miles, of paved roads
annually.

The Australia and Thailand markets are strong, he said. In Japan, "we are
modernizing our approach," he said.

Michelin said the company expands its market share internationally by
developing a product and building tires in the country. Once the tire company
is established, it then tends to enlarge its market by buying other companies.
It became No. 1 in China and Romania in that fashion.

"I think it is our effort to find a balance" in growth, he said.

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