Amiens closure is inevitable, so what’s it mean for the rest?
With no buyers seeking to purchase it, the closure of Goodyear’s Amiens Nord tyre manufacturing facility now looks inevitable. And according to various French news reports, France’s government has now faced up to the fact that this means the loss of up to 1,200 jobs.
Indeed closure is now the only option on the table after the French Agency for International Investment (AFII) contacted 57 potentially suitable of which just eight said they would be interested. Of these five signed confidentiality agreements and two non-binding offers were presented, but France’s Economic Redevelopment Ministry said “after careful examination of the plans put forward,” no candidates were in a position to present a binding offer.
“Taking into account the major impact of Goodyear withdrawing on staff and the region’s economy, we have asked the company to propose solutions allowing workers who will be made redundant to find another job as quickly as possible,” a statement from the Economic Redevelopment Ministry pointedly said. “The State will commit itself to be with the regions and workers, to support reindustrialisation projects it will initiate to save the most jobs possible.”
So now, that it appears that the inevitable is indeed happening, what are the knock-on effects of Goodyear’s Amiens closure? Apart from the fact that this much-discussed move has made it palatable for virtually all the leading manufacturers to raise the spectre of their own potential industrial rationalisation programmes (read factory closures) when talking in terms of European manufacturing demand/capacity balance, it means a direct impact on total European production volumes in the here and now.
According to financial analysts at Deutsche Bank, the closure brings industry total capacity to 33 million units across Western Europe over the last 5 years. Goodyear’s passenger car and light truck tyre plant in Amiens France had an annual capacity of 5.5 million units and employed 1200 people. But what is perhaps more interesting is the fact that Bridgestone Bari in Italy (which itself offered 7 million units of production capacity and employed 950 people) also being wound down.
Therefore over the course of the last five years the industry Michelin, Continental, Pirelli, Bridgestone and now Goodyear have closed 34 million units of tyre manufacturing capacity in Western Europe. At the same time the industry has built 33 million units of new capacity in Central Europe (specifically Poland, Romania, Czech Republic, Serbia). To put this into perspective, Deutsche Bank estimates that the Western European passenger car tyre market has remained stable at around 275 million (65 million tyres for OE and 210 million for the replacement market) for the last 5 years.
The reason? Producing tyres in Western Europe has a high labour cost of roughly 8 euros a tyre and continues to face competition from lower priced Chinese-produced imports from China, which are estimated to total around 50 million units in Europe and which have doubled in unit volume in the last five years. Therefore tyre manufacturers are expanding capacity in Eastern Europe where labour cost are considerably cheaper at around 2 euros a tyre, while closing capacity in Western Europe.
Its about more than just here and there
While well thought out and no-doubt factually based, isn’t this numbers-only thesis a little over simplistic? Speaking at the 29th Clemson University Global Tire Industry Conference at the end of April, Dennis McGavis, Goodyear’s director of global sustainability spoke of how companies such as Goodyear are having to assimilated something of a paradigm shift in order move forward in the second decade of the 21st century. The globalised market simply isn’t the linear zero-sum game it once was.
Once global trade, he explains, was all about basing growth on positions in developed nations. It was a question of “make there and sell here” as well as “make here and sell there” where appropriate.
Now, with the meteoric growth of the so-called emerging economies, some countries that were once called third world and are only just ending development aid are in the driving seat. As a result the new mantra is somewhat more complicated: “make here, sell there, make there, sell here, make there, sell there.” And with the “emerging markets” growing at the rate that they are it is this latter point that is becoming increasingly important – wherever businesses are making their tyres, they are paying more attention than ever to the “sell there” side of things.
Meanwhile, no-one can deny that demand has faltered in mature markets such as those in Western Europe and the question of matching demand with production capacity has to be addressed. But closing down factories is not as easy as simply shutting up shop, whatever the financial analysts and the stock markets they represent might think. Firstly tyre manufacturers have demonstrated that they take corporate and social responsibility serious over the years with many helping those whose jobs no longer exist diversify into other areas and even set up new businesses of their own. But in addition to philosophical arguments against plant closures, much more recent history shows us that closures themselves are expensive and bring with them their own complications.
For example, taking Goodyear as case study once again, on 10 April it emerged that court proceeding that took place in saw Akron, Ohio Goodyear Tire & Rubber Co. being sued by French workers claiming the company’s factory closure plans violated laws of both countries.
Mickael Wamen, an employee, and the Central Works Council, a body elected by employees to represent them, filed a complaint 9 April in the state court in Akron, Ohio, calling for US$4 million in damages and class-action status for the case. The employees claim the parent company interfered with their relationship with its French unit against Ohio law. Furthermore the case was said to have been filed in the US because the offending conduct is alleged to have occurred at Goodyear’s headquarters in Akron.
The point is that large tyre manufacturers may want to close down some manufacturing capacity for economic reasons, but philosophical and practical considerations mean this is far from simple and – up till now – there has often been a creative “third way” out of this particular rabbit hole.