Michelin sticking to strategy in US tyre market

By Kathy McCarron

Greenville South Carolina-Prospects for the US tyre market generally seem dim, but Michelin North America Inc. (MNA) has high hopes that new products, marketing campaigns and production and distribution strategies will help it achieve another upbeat year.

During a recent press conference at its Greenville headquarters, MNA officials reviewed the company's achievements of the past year and its strategies for 2008.

While other companies may be looking toward outsourcing from Asian markets to reduce production costs, the North American unit of Group Michelin said it plans to continue to entrench itself in the regional market.

With 19 plants and 22 300 employees in North America, MNA Chairman and President Jim Micali reiterated that the tyre maker is not planning to pack up and move those manufacturing facilities. “We're going to make the footprint work and work well,” he said, while at the same time admitting that the region “is not an easy environment” in which to operate.

He pointed to Michelin's investment in North American manufacturing and research and development, including more than $1200 million for plant expansions and upgrades, to support his statement. “The investment shows we will be a very viable presence in North America in years to come.”

MNA accounts for 33 percent of parent Group Michelin's global sales, posting sales of $8100 million last year, including $7600 million to customers in North America.

Micali noted that while the US dollar declined in value, the North American division's unit sales increased.

Despite a raw materials cost burden anticipated to reach about $300 million for its worldwide operations this year, Group Michelin expects continued improvements in net sales and operating income as emerging countries drive tyre market prospects and the company continues its goal to improve industrial productivity and cost reduction.

The tyre maker is less optimistic about the North American market conditions, according to Micali. New car production is expected to lag and the passenger and light truck tyre replacement market is predicted to be nearly flat with a slump in the commercial tyre market.

Micali qualified that the market predictions were based on gas prices during the end of last year, which have since escalated. “If people drive less (due to rising gas prices), it will have an impact on the tyre market,” he said.

Add to that a devaluing US dollar and lower-cost imports from Asia, and MNA is banking on product differentiation to improve its prospects. The company will continue to promote products such as the X One so-called “super single” truck tyre, the Axiobib agricultural tyre featuring the firm's new Ultraflex technology launched last year, and several energy efficient tyres. The company's various units also are revamping distribution and marketing programs to improve sales and productivity.

Michelin Americas Small Tires

According to a survey of its dealers, increasing the Michelin Americas Small Tires (MAST) unit's sales force last year in response to dealer feedback “paid off,” according to COO Scott Clark. However, Michelin admitted it had a poor performance in fill rates last year and vowed that improved service was its “No.1 priority” this year, Clark said. Ironically, the company said it underestimated the strength of the market in 2007 and was not able to satisfy demand, especially for light truck tyres.

To address this problem, Clark said Michelin is bolstering its North American plant capacity, including building a plant in Guanajuato, Mexico. The company also is launching its Nexus program in which distribution centers provide short-term sales forecasts and local lead time requirements directly to a plant. “It will help us do a better job to make the right stuff and get it more quickly to the distribution centers and customers,” Clark said. He admitted the old way of forecasting demand didn't reflect real-time situations, such as the timing of local tyre promotions.

“We've made substantial progress in finding and addressing root causes and have been able to reduce our 'order fulfillment lead time,' a key indicator reflecting the average number of days it takes to move production from our plant warehouses to distribution centers, by more than 25 percent with the use of Nexus tools,” he said. MAST operates 17 distribution centers in North America.

MAST also plans to implement three programs it test-marketed last year to improve dealership sales of its Michelin brand. Clark acknowledged margins on Michelin-brand tyres are less than the competition, but the company said it has continued to improve dealer margins since 2004. On the up side, a dealer survey concluded that purchasers of Michelin and BFGoodrich brands tend to buy more services from the dealerships compared with other customers.

One of the new dealer initiatives is a joint community marketing program featuring regional promotions that offer incentives and direct consumers to selected local dealerships. Parmeet Grover, brand director for the Michelin brand, said the test program bolstered traffic and increased consumers' “intent to buy” by 20 percent.

Michelin also will offer a credit card through CarCareOne, a private label credit program managed by GE Money. Michelin said the credit program, available last year at about 70 locations, helped double those dealerships' Michelin sales mix. Customers can choose a 90-day, 6-month or 12-month no-interest credit term on their Michelin purchases. The program has no annual fee and no down payment and offers a menu of promotional payment terms.

Grover said the credit card makes the higher-priced Michelin brand more accessible to customers who normally can't afford it.

To augment these two programs, Michelin has set up an online sales tutorial that provides “talking points” dealers can use to better sell Michelin-brand tyres to potential customers.

Because competitors are increasing their strength through advertising, Grover said Michelin likewise will pump up its media presence by expanding its television, radio, print and online advertising this year.

MAST also plans to continue and expand its “Decisions” BFGoodrich ad campaign targeting so-called “gearheads” and their favorite magazines and programming. The company is encouraging dealerships to partner with four-wheel-drive clubs to promote selected “outstanding trails” around the US and Canada as a way to build brand and dealership recognition.

Michelin is turning over the BFGoodrich brand portfolio with new product introductions that started last year and will continue through 2008, Grover said.

Meanwhile, the tyre maker's third-tier brand, Uniroyal, will continue its focus as a value replacement brand. The company said that as raw material prices continue to increase, it has decided to suspend original equipment (OE) development for the Uniroyal brand. “OE is not the future for the brand,” said Kaz Holley, brand director for BFGoodrich/Uniroyal/private & associate brands.

Rather, the company will promote Uniroyal through sponsorship of major league soccer on the ESPN cable television network and continue its annual soccer ball giveaway program for a ninth year. The company also will continue to promote the economic value of Uniroyal through its spokespersons on the MommySavers Web site and on Spanish-language media.

Michelin Americas Truck Tires

“Michelin will concentrate all its efforts on the X One,” said Marc Laferriere, vice president of marketing for Michelin Americas Truck Tires (MATT). The company is expanding the line to include aggregate haulers and, particularly, recreation vehicles-a segment Laferriere said is “a substantial part of our business.”

MATT also is offering a full portfolio of retread designs for the X One, improved accessibility of replacement tyres around the country and an expanded dispatch service for roadside assistance for X-One-equipped trucks.

The firm's truck tyre unit is revamping its business-to-business Internet portal, including improving financial transactions and billing processes, because a vast majority of its transactions are electronic. “We aspire to improve how we track orders online and send invoices,” Laferriere said.

Farm tyres

Michelin is focusing on 100-plus horsepower (75 kW) tractor tyres for the agriculture market, which is booming this year. “Farmers are buying every machine they can get,” said Eddie Barnes, director of sales for Michelin Agricultural Tires North America. This has created back orders of tractors extending into next year, he said.

Since exiting the cross-ply farm tyre market last year, Michelin said it has now set its sights on accelerating the radialisation rate in the agricultural and industrial tyre markets. The firm also plans to increase its market share with OE manufacturers by entering new segments, including floaters, sprayers, combines and backhoes. About 50 percent of Michelin's agricultural tyre capacity in North America is for the OE market.

MNA will begin importing from Europe the new Michelin Multibib 65 series tyre that has a 30-percent larger footprint than standard 65-series tyres but uses the same rim size. The Multibib has a D-speed rating, approved for road speeds up to 40 mph at 23 psi (1.6 bar); can operate at a lower air pressure of 6 psi (0.4 bar); has a flatter tread profile that increases service life by 35 percent-about 5 to 8 years-by maintaining an even wear pattern; and has a larger footprint to reduce soil compaction.

Michelin said it also plans to improve its farm tyre market coverage by expanding its distribution network and launching distribution programs to help its distributors.

From Tire Business (A Crain publication)