Micali and Michelin North America: The result? A record $6.8 billion in tire sales
Jim Micali has kept a low profile at Michelin North America Inc. (MNA) since taking over as chairman and president in 1996. However, under his guidance, the Groupe Michelin subsidiary has increased its tire sales 58% in 10 years.
According to Micali, the price increases that MNA announced last year stuck, which boosted tire sales to a record $6.8 billion in the United States and Canada in 2006.
Rising raw material costs the last three to four years have posed a problem -- "There's still a piece we've had to absorb internationally," he says -- but the lion's share of increases have been offset on a global basis.
Profitability has fluctuated since 1996, but Michelin is always in the black. Michelin also will be able to lower costs by attrition: Up to 50% of its workforce will be eligible for retirement in the next five to seven years.
Micali says the average salary and benefits of workers in the U.S. is $70,000 to $80,000; in China, it's $3,000!
"We're a healthy company," he says. "We are aggressively reducing our costs." In an exclusive interview with Modern Tire Dealer, Micali addressed some of the concerns facing his company.
1. U.S. manufacturing. Micali said Michelin "intends to be a long-term, very viable manufacturer in North America." When asked if despite that statement Michelin could close one of its three unionized domestic plants (inherited by Michelin when it purchased the Uniroyal Goodrich Tire Co.), he said "It's always a possibility. (But) in our labor agreement, we agreed to $100 million (in upgrades) in BFG plants in the next three years." Why spend the money if you plan to close the plants? he asked.
Capacity increases at Michelin's non-union plants added up to more than $100 million in 2006, with more to come. (Worldwide, Groupe Michelin invests anywhere from $1 billion to $1.5 billion in its plants each year.)
There's no reason to close plants if they are productive, he said. "We can earn our way to profitability" plant by plant.
Michelin has 11 non-union and three union tire manufacturing plants in North America. MNA's 2006 contract with the United Steelworkers of America, which Micali categorized as fair, "allows for significant productivity improvements."
The challenge is to be able to compete with low-cost imports. (Michelin also has manufacturing plants in China, but according to Micali, "the vast majority of Chinese production stays in China.") The keys are "execution and delivery," he said. MNA's Kitchener, Ontario, plant, which it closed last year, was "just unable to compete on the (broad-market) side."
2. Distribution. Micali readily admitted to "some fill-rate issues" in 2006, but said the company is working very hard to improve on that. "I know we can improve our distribution delivery system," he said.
MNA is dropping its lone distributor in the U.S., T&T Logisics, and is transitioning to a multiple-supplier setup (T&T remains Michelin's Canadian distributor). Michelin has nine domestic distribution centers.
The company also has embraced DRP (deployment resource planning), a software tool designed to help with distribution logistics. "That should help us put the right tires at the right distribution center at the right time," said Micali.
Logistics will be a key to Michelin fulfilling its recently announced $1.7 billion military contract with the U.S. Under terms of the contract, it will supply ground tires for every type of wheeled vehicle used by the four branches of the U.S. military. That includes the BFGoodrich Baja T/A for the military's Humvee vehicle.
Michelin will receive an additional $700-plus million to supply aircraft tires to the military.
Groupe Michelin in 2006
Tire sales, worldwide: $19 billion
Tire sales, U.S./Canada: $6.8 billion
OE consumer market share, U.S./Canada: 18%
Replacement consumer market share, U.S. (Michelin, BFG, Uniroyal): 17%
Annual plant capacity, North America: 76.8 million
Source: Modern Tire Dealer 2007 Facts Issue