Michelin plans more investment in China

Automotive News / March 22, 2004

Michelin Group of France paid $200 million in March 2001 for 70 percent of Shanghai Tire & Rubber, China's largest maker of car tires. The deal gave Michelin ownership of China's best-selling Warrior brand and a modern factory.

Passenger-car sales in China have soared since then, hitting 2 million in 2003.

To meet the demand, Michelin is expanding the plant's capacity, though it declined to give details.

When the expansion is completed in three or four years, the Shanghai plant will be one of Michelin's largest.

Special Correspondent Alysha Webb interviewed Eric Jugier, chairman of Michelin (China) Investment Co.

How important is China to Michelin's worldwide sales?

China represented less than 5 percent of our 2003 sales of 15.37 billion euros ($18.86 billion at current rates), but it is the fastest growing market in the world for Michelin.

Michelin has invested $350 million in the Shanghai site and your commercial-vehicle tire factory in Shenyang. How much more will you invest in China?

We will continue to invest a few hundred million in China by expanding Shanghai and other operations in China, and possibly with other acquisitions.

The market is there, the opportunity is there. The money will be there if there are opportunities to expand.

Who are your customers?

One-third of our sales are to OEMs; the rest are aftermarket.

The commercial tire-vehicle market is growing a little faster than the passenger-car market right now because commercial vehicles in China are switching to radial tires and the aftermarket is growing a lot.

The Warrior brand goes on the medium-sized and smaller cars, like the Shanghai Volkswagen Santana.

The Michelin tires go on cars like FAW-VW's Audi, Guangzhou Honda's Accord and imported cars.

But the Michelin brand is also expanding into the medium segment as smaller high-end cars like the domestically produced BMW 3 series enter the market.

Will you use China as an export base?

We are focusing on China for a very simple reason: The growth of the market is very strong.

We only export to balance our production capacity. We're exporting a little bit from the Shanghai passenger-car tire plant right now and none at all from the Shenyang plant.

Commodity prices are going up worldwide. Is Michelin able to pass those increases on to its customers in China?

We are increasing the price of our tires 3 to 5 percent.

We also increased prices last September and a year ago.

I wouldn't say that price is a major concern for us at this stage.

Our two brands come at a big price premium - a 10 to 30 percent markup.

This puts us in a situation to take initiative on price. And in many occasions our competitors will follow our initiative.

Foreign companies usually are not allowed to buy controlling shares in state-owned enterprises here. How did you persuade the Shanghai government to sell you a controlling share in Shanghai Tire & Rubber?

We told the government we would bring our technology to China under the condition we had control of the operation.

We explained to the Shanghai government and the central government that Michelin's annual research and development budget of 5 percent of sales revenue was bigger than the entire turnover of Shanghai Tire & Rubber.