Despite production cutbacks...
Despite the current economic climate and supply-and-demand imbalances that have forced various manufacturers to temporarily clip production, Michelin North America Inc. (MNA) remains committed to North American manufacturing, says MNA Chairman and President Dick Wilkerson. (Wilkerson replaced former MNA Chairman and President Jim Micali this past August when Micali retired.)
That doesn’t mean MNA is immune to the impact of reduced consumer tire demand. The tiremaker is in the middle of an eight-week production curtailment at three of its BFGoodrich plants that began on Nov. 1. “If the market is down, we have to take our manufacturing schedules down to meet market demand.” However, on a long-term basis, “we have not changed our focus on manufacturing in North America.”
There are several advantages to this strategy, he notes, including substantial cost savings. “Working capital goes up significantly when you go offshore because of increased inventory. You’re not able to respond quickly to the market. Plus, when you manufacture in the zone where you sell, you partially hedge currency fluctuations.”
MNA is investing $100 million in North American plant upgrades, which Wilkerson says demonstrates the firm’s commitment to domestic production.
“We believe the right way to handle our industrial footprint is to... look at how we optimize our current footprint, get the added capacity we need for some of the dimensions we’re having trouble supplying and at the same time, improve productivity.” (Some of MNA’s high performance tires are on back order, he admits.)
Wilkerson predicts 2009 will be a challenging year for the tire industry. Even though gas prices have dropped in recent months, miles driven are still down versus previous years.
“For the period of November 2007 through June 2008, there was something like 54 billion fewer miles driven than during the same period the previous year. That translates into a lot of tires. And that doesn’t include the drop in original equipment demand driven by customers who are abandoning SUVs and pickup trucks.”
Wilkerson says MNA is keeping an eye on the continuing credit crunch. “What happens if credit dries up? Can a tire dealer get sufficient working capital to run his or her business? How does that impact their ability to serve the marketplace?
“With consumers, it’s twofold — it’s not only the reality of not getting the credit to buy what they need, it’s the chilling factor of seeing on the news every night that the economy is suffering. But these are things that are beyond our control as a company.”
What MNA can control is how it adjusts to changing market conditions, he adds. “We tend to be mid- to long-term focused.”
Product development will continue, but it will be conducted in a leaner fashion. “We’ve been looking for improvements in our research and development efficiency that will allow us to perhaps focus on fewer projects but do that much more efficiently, so we get a more rapid turn.
“All of our competitors have the issues of market, customers, demand, etc., that we deal with,” he explains. “We all have the same economic environment to work in. What matters is that we perform better than any other team playing in the marketplace.” ■