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February 06, 1995 01:00 AM

MICHELIN, CONTI PLAN VENTURE

Bruce Davis
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    HANOVER, Germany-Continental A.G. and Groupe Michelin have agreed to a series of cooperative activities in Europe, among them a joint venture to make low-cost passenger tires for Europe's growing budget marketplace. The deals are subject to approval by cartel authorities in Europe. Cross ownership was ruled out by both parties.

    The companies each anticipate operational savings of $60 million to $65 million annually by 1997 out of the synergistic effects of the cooperation, which will involve mat-erials procurement, tire distribution, original equipment tire-wheel assembly, retreading and recycling in addition to the joint manufacturing venture.

    For Conti, the agreement secures European marketing rights to the Uniroyal brand name beyond 2004, when they would have reverted to Michelin, which gained them in its purchase of Uniroyal Goodrich Tire Co. in 1989. Conti's sales of Uniroyal tires have averaged about $665 million the past few years, representing 15 percent of its annual tire sales in Europe, the company said.

    According to the licensing agreement, Michelin would have been able to start using the brand name as early as 1999; Conti already had begun a project to phase out the Uniroyal name, but now can stop work in this direction, Chairman Hubertus von Grunberg said. The parties have not yet agreed on the site for the manufacturing venture, but both said it will involve an existing Conti factory.

    The 50-50 manufacturing venture will give Michelin a steady source of low-cost car tires for the first time. This will allow Michelin to round out its product offering into the budget segment, which has grown steadily in recent years to roughly 25 percent of the European aftermarket, according to Continental data.

    Michelin said it is still considering which brand name or names to use for the budget segment tires it will sell; it's unlikely the firm would use the Michelin brand for this type of product, analysts agreed.

    Michelin broadened its product range into the middle priced segment about two years ago with the launch of its ``Classic'' line of tires, but has up to now not been able to offer its dealers an entry-level product.

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