Pirelli recently invited journalists and analysts to its factory at Bicocca, Milan in order to see first hand the company’s new manufacturing process MIRS (Modular Integrated Robotized System). MIRS reduces the steps in tyre manufacturing from 14 to 3 and a tyre can be produced every three minutes. Tyres are built round a special drum, with the instructions given to the robots (the process is totally automated) through a barcode. The tyres are said to be more uniform and consistent. As well as its speed and flexibility, MIRS has the advantage of compactness and a line capable of producing 125,000 tyres a year can be sited in an area of a mere 350 square metres. Pirelli Chief Executive Marco Tronchetti Provera said that Pirelli will invest 50 million Euro over the next three years in 80 MIRS lines, increasing output by ten million tyres a year. Two of these lines will be located at Pirelli’s Burton-on-Trent factory in the UK, concentrating on SUV and 4×4 tyres. Burton stopped making tyres in 1994 and the news is a welcome change for the UK tyre manufacturing industry. It is a large factory, and there is ample scope for more MIRS lines to be added in the future, should this be Pirelli’s strategy. The figures associated with MIRS are truly impressive; investment costs are lower than for traditional factories and the minimum economic batch size has been reduced from 3,200 units to 375. The time taken to change sizes comes down from 375 minutes to 20. Workforce productivity is increased by 80% and MIRS uses less energy than a ‘normal’ plant. The manpower needed is significantly reduced too – it is estimated that 850 staff will be needed to produce the proposed ten million tyres. There is one other figure which, in these days of competition and falling prices, is even more interesting – a MIRS tyre is 25% cheaper to produce than a conventional tyre.
Firestone has been forced, for the second time in the company’s history, to recall tyres in North America. 22 years ago, the recall of 14 million “f 500” tyres, almost ruined Firestone. The current situation refers to the recall of 6.5 million SUV tyres, the ATX, ATX II, and Wilderness line in the size P 235/75 R 15. About 2/3 of these tyres are earmarked for Ford’s OE demand for the Ford Explorer and the Ford Ranger. Bridgestone already announced that it would take a one-time $ 350 million charge and informed analysts that earnings estimates, $1 billion before the recall situation, had to be reduced by the amount of the taken charge. Whether this is the only financial impact that BFS will have to encounter is more than doubtful. In the US a horde of consumer advocates stand ready to sue BFS, all in the name of consumer advocacy. The likely cost of litigation is not included in the $ 350 million charge. The extent of the damage to BFS and its Firestone brand cannot be evaluated, it remains to be seen how the entire industry will be affected by this recall. Without any doubt, the Firestone brand has suffered a serious blow despite the fact that up until today it has not been demonstrated that the tyres were the cause of accidents investigated by NHTSA. BFS, so it seems, never really had a chance to manage the ensuing crisis in an optimal way. Although the crisis didn’t hit BFS completely out of the blue, BFS had to take into consideration the interests of its largest OE customer Ford on the one hand, and its own interest to protect the Bridgestone brand from any spill-over effects. One thing became abundantly clear: two kinds of tyre manufacturers currently exist. One the one hand, there are those who have already had to deal with a disastrous recall situation and on the other hand are those that will have to do just that at some uncertain time in the future.
Ford has conceded that it was aware of problems with Firestone tyres in Venezuela as long ago as 1998. Ford CEO Nasser admitted two weeks ago that, in Venezuela, not only had the tyres been changed, but modifications had been made to the vehicle suspension. Analysts said that attempts to place the entire responsibility upon Firestone have failed.
Goodyear’s net income for the fourth quarter of last year amounted to US$ 47.8 million compared with US$ 121.5 million in the fourth quarter of 1998. The company’s net income for the whole of 1999 was US$ 241.1 million compared to US$ 682.3 million in 1998.
Analysts are recommending investment in GM rather than Ford. Ford is under the public microscope and the focus of analysts. This week, the shares have fallen 13%, representing damage to the group of more than US$ 10 bn. The management is accused of having known about the problems – which have led to the voluntary recall of Firestone tyres – for around two years. Consumer groups and official authorities want an answer to the question whether Ford has worked (ie changed or improved) on the suspension of its vehicles in Venezuela in order to overcome the problems there. The reaction at the stock exchange has probably gone far too far, as, even if the company had to mount a vehicle recall, the figure of US$ 10 bn is too high. The real costs, if any, would be in the region of US$ 1 bn or less.
Financial analysts are predicting that Michelin’s net profits for 1999 will be between 350 million and 661 million Euros. The reason for the unusually large spread is that no-one knows exactly what provisions will be made in the accounts to cover charges for restructuring.
Despite the recovery in vehicle sales in Asia over the past two years, analysts are predicting a slowdown in sales in parts of the region, notably South Korea. The Asian car market is expected to fall by 3% next year, with little sign of recovery in 2002.
The differentiation within the Goodyear brand, which has been most conspicuous in North America, will soon be a thing of the past. On Thursday Gibara declared in front of analysts in New York that the Goodyear brand will in future only be a premium brand; the group’s range will be complemented by Dunlop (medium brand) and Kelly (economy/budget brand).
Finnish tyre manufacturer Nokian has achieved a net turnover of 199 million Euros in the first nine months of this year; an increase of around 20 %. Operating profit is 18.4 million Euros (9 % lower than the previous year). Nokian is pursuing a strategy of expansion and, this year, will invest some 31 million Euros, with the aim of increasing production capacity by 50% within five years. At the moment, Nokian is trying to purchase ISKO, Finland’s largest tyre dealer with a turnover of approximately 65 million Euros. Analysts say that ISKO is financially very strong and very profitable.
Goodyear has told bank analysts that it will close a large factory in Italy that produces six million tyres a year. Goodyear produced about 55 million tyres in Europe this year and intends to reduce the production capacity from 72 million tyres (after the Dunlop take-over) to about 62 million by 2002. After Goodyear’s shares lost more than 40 per cent of their value, they announced plans to close more than one factory and increase production in the remaining European plants by introducing a seven day operation.