Michelin pricing challenged by tire labelling flop

ERJ staff report (TP)

Paris − European consumers pay little attention to performance labels on car tires, survey data revealed on Wednesday (13 November) in a setback for Michelin and other premium brands counting on the new scheme to support pricing against flagging demand, reported Laurence Frost and Gilles Guillaume from Reuters.

The European Union tire labelling scheme has had negligible impact on purchasing decisions in its first year, according to the findings of pollster Ipsos endorsed by retailers.

"The effect has been weak, not to say non-existent," said Régis Audugé, president of France's SPP tire industry body, an association of 2,500 retailers.

Michelin, Europe's biggest tiremaker, is facing tougher competition from rivals like South Korea's Hankook Tire Co. Along with an emerging market currency slide, pressure on prices has already contributed to a recent profit warning by the French group.

Michelin had campaigned for mandatory labels comparing tires, the way similar programmes already help European consumers select washing machines or fridges on the basis of performance and energy efficiency.

The standardised labels, displayed prominently by physical and online retailers, score each tire model's energy efficiency and braking performance with a single-letter rating from A to G, along with its noise emissions in decibels.

But fewer than half of people who purchased tires since the scheme's introduction in November 2012 were even aware of the labelling, according to the poll commissioned by online comparison site rezulteo.com.

Only 3 percent cited the labels as a main reason for their brand choice - compared with 17 percent who were motivated by price and another 17 percent by habit. Ipsos questioned 3,400 motorists in France, the UK, Germany, Italy and Spain.

"The question was whether labelling would persuade them to buy higher quality tires," SPP chief Audugé said. "In fact, we've seen nothing of the sort."

The introduction of labelling "has not had any impact on prices", a Michelin spokeswoman said, adding that the company "has been and remains a supporter of the new regulation".

Michelin tires are typically priced above their nearest premium competitors from Bridgestone and Goodyear at outlets such as French online retailer feuvert.fr.

After years of steady increases, the French company was forced to begin cutting prices in 2013 to avoid losing customers to Hankook, Chief Financial Officer Marc Henry told analysts in April.

Stuck with relatively costly labour and manufacturing, Michelin may face more tough choices between sales and profitability as rivals pass on raw material cost declines to consumers through lower prices, according to Barclays analysts.

The bank cut its rating on Michelin stock to "underweight" in September and expects tire prices to slide 3 percent in the latter half of 2013 and a further 0.5 percent next year.

"We think there is more payback to come," Barclays analyst Kristina Church said in a recent note to investors. "Pricing remains our key worry."

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Full story from Reuters