Michelin Cuts Jobs In France
Michelin Has Little Time For Non-French Press [5/2000]In October 1999, against the background of record figures, the Michelin group revealed that it was to lose 10% of its European workforce – 7,500 jobs – within three years. This message led to a sharp public exchange between the group and the government, with the latter thinking of a “Lex Michelin” which would block the government money usually paid to companies when they send people into early retirement. The government claimed to have paid around 600 million Euro in the past for precisely this reason, but neglected to tell the public that, during the same period, Michelin had paid in 7 billion Euro in taxes, social expenses, fees and so on.
The group pointed out that it is still investing a lot of money in France, where it has 30% of the capacity but only 15% of the overall market. Edouard Michelin has made it clear on several occasions since that the group has no alternative other than to improve productivity in order to be competitive. The group, M.
Michelin said, could have handled the matter more professionally and that press relations needed more attention in the future.The 1999 profit and loss figures were disappointing, with the EBIT falling from 353 million Euro to 154.4 million as the group built up ‘reserves’ to cover the restructuring costs.
Michelin told analysts and some French press that four sites in France are to be affected; the Kléber factory in Toul which will in the future produce only passenger car and SUV tyres; the Kléber factory in Troyes, which will produce only agricultural tyres, and one Michelin factory in Clermont Ferrand, which will produce truck tyres, mainly for export. The management also spoke about some merging of R&D facilities in Clermont-Ferrand and the construction of a multi-brand service centre at the group’s headquarters. In all it means the loss of 1,900 jobs, most of which would be early retirement with only about 100 non-voluntary redundancies.
The Need For Better ProductivityThe question is, why is Michelin forced to improve productivity in Europe. In the past, Michelin has earned a lot of money in Europe but has lost market share; prices, compared with those of competitors, have become too high and the consumer is no longer so convinced that he should pay considerably more for a Michelin tyre than somebody else’s. The group needs to cut prices and in so doing will lose profits, thus the only alternative is to cut costs wherever possible just in order to achieve the same profit as before.
Another factor is that Bridgestone is giving Michelin a hard time in its key European markets. The Japanese are in an excellent strategic position, having made an operating profit of around US$ 1.8 billion, with 60% coming from the Japanese domestic market.
In other words, Bridgestone’s operating profit works out at 12.7% from sales in Japan, 7.3% from sales in the USA and 3.
3% from Europe. The reason for the low figure of 3.3% is that Bridgestone/Firestone has been successfully trying to gain market share in recent years.
Expectations are that the Japanese will increase the pressure on Michelin further to make it more difficult for them to use Europe as a cash cow. In this environment, a “Lex Michelin” would be an excellent weapon with which Bridgestone/Firestone could take on its big competitor Michelin; and a weapon delivered by the French government.Michelin needs to increase the competition with Bridgestone in Japan, but this is easier said than done.
With only the Okamoto factory and a poor distribution network (distribution is the key to success in Japan) the French group is not equipped to do it. Even Goodyear is in a poor position in Japan compared to Bridgestone, because SRI also only has a small distribution base there and Goodyear, being a relatively unknown brand, has to sell at a cheap price. A big step for Michelin would be if the company could acquire Yokohama, which has a good distribution network in Japan.
However, no-one knows whether Yokohama will be up for sale, and even if it were, could Michelin finance the deal? Who knows? All is speculation.So it is that Michelin has no option other than to reduce costs in Europe as quickly as possible and to increase production capacity by 20%. In France, the company has taken the first positive steps in this direction.
Having said all that, nobody really knows why the French group is informing only the French press. It remains their secret. Probably they consider it a “French matter”, yet if they have good things to say, these become global matters.