TOKYO-Japanese tire makers are back on track. Sales are up, costs down, and a weaker yen has made exporting profitable again. Plants are operating 24 hours a day, seven days a week. All in all, the outlook is better than expected as 1996 moves into its second half. Through May, production was up 3.9 percent vs. 1995-well ahead of the Japan Automobile Tire Manufacturers' Association's earlier forecast of 0.8 percent growth.
Industry analysts speculate output for the full year could surge to another record following last year's 1.04 million metric tons (as measured by new rubber consumption). The previous industry high was 1,031 tons in 1990, the height of Japan's ``bubble economy.''
Not surprisingly, all of Japan's tire makers are profitable-even Toyo Tire & Rubber Co. Ltd., which saw its business fortunes sink in recent years and has restructured its domestic manufacturing and sales operations.
The Osaka-based company, whose strength lies in producing large tires for buses and trucks, is scheduled to phase out its 43-year-old Itami plant, shifting production to the newer, 16-year-old Kuwana plant of its subsidiary, Ryoto Tire Co. Ltd.
Ryoto, the former Nitto Tire Co. Ltd., was scheduled to be absorbed by Toyo on Oct. 1 of this year.
Said Fuyuki Fujiwara, a securities analyst at Barclays de Zoete Wedd Research Ltd.: ``Industry profits should grow this year on the back of aggressive rationalization programs and lower rubber prices. All tire makers have engaged in cost-cutting campaigns, with the most visible efforts being directed at reducing the number of tire sizes produced.''
Mr. Fujiwara claims that if company targets are met, the number of tire types and sizes produced in Japan will drop below 20,000 this year-nearly 40 percent below peak levels, leading to higher production efficiency. ``Similar attempts to consolidate rubber types and other raw materials should raise productivity,'' he said.
Bridgestone Corp. three years ago embarked on an aggressive program to raise productivity at its domestic plants by 50 percent. It since has made progress toward achieving this objective by shifting low volume tires offshore to Indonesia and Thailand and by concentrating production of certain tire types, such as pickup truck tires, in a single facility, rather than at two or three plants as before.
As a result, Bridgestone is still the industry leader with an estimated 40-percent share of Japan's domestic tire market, both original equipment and replacement. More significantly, the company now is able to export profitably, its exchange rate break-even point being 100 yen to the dollar.
With especially strong product demand in the Middle East, Africa and Southeast Asia, its overseas shipments rose 34 percent in value between January and June.
In addition, Bridgestone now is generating substantial profits from its North American and European operations. Bridgestone/Firestone Europe S.A., spun off five years ago, has been in the black since 1991, reporting a net profit of $52 million last year. The subsidiary is projecting $70 million in earnings this year.
Meanwhile, the outlook is even brighter for Nashville, Tenn.-based Bridgestone/Firestone Inc., which between 1988 and 1992 ran up losses of more than $1 billion. This year, the rejuvenated U.S. unit is on target to realize earnings of $180 million, following last year's surprise $130 million profit.
Combined, the two subsidiaries-the largest in Bridgestone's global network, spanning five continents and 20 countries-project $250 million in profit this year. Net sales are expected to rise to $8.4 billion, nearly half of the company's worldwide turnover. Bridgestone now produces 60 percent of its tire output outside of Japan.
And with stronger than expected performance in the Japanese domestic market, the Tokyo-based company now is looking for 34 percent growth in consolidated net earnings to $688.7 million, revising upward its initial 1996 fore-cast made in late July. Industry analysts are even more bullish.
Meanwhile, Sumitomo Rubber Industries Ltd., forced to close its Kobe plant due to massive structural damage caused by a 1995 earthquake, is projecting moderate earnings again this year.
Forced to absorb $188.7 million in storm-related expense, including the transfer of motorcycle tire production to its Toyota City plant, the company is predicting profits of $37.7 million on consolidated sales of $5.4 billion.
Outside Japan, Sumitomo's Germany subsidiary, Hanau-based SP Reifenwerke GmbH, registered record profits and sales in 1995. These were offset, however, by estimated losses of $21 million at Dunlop Tire Corp. in the U.S.
Yokohama Rubber Co. Ltd. is projecting a fourfold increase in earnings this year to $33 million. Last year, due in part to $28 million in losses at Yokohama Tire Corp. in the U.S., net earnings fell to $5.3 million.
All of Japan's tire makers have received an unexpected dividend from exports. And the reason: The yen dropped 12 percent against the dollar during the first six months of this year.
``Profitability on exports has improved dramatically, and it's begun to show up on the bottom line,'' said Takaki Nakanishi, an analyst for Merrill Lynch in Japan.
Reflecting this development, export shipments through May were up 10 percent and now account for 44 percent of production. This compares to a 35-percent share 10 years ago. Moreover, when extrapolated over the full year, exports could reach 465,000 tons-the largest such volume on record.
While this is taking place, domestic auto sales increased slightly through June, easing pressure on the original equipment sector. Moreover, tire imports, which last year rose to an all-time high of 14.9 million units, fell 11 percent between January and June in part due to the stronger dollar.
Elsewhere, Japanese tire makers are expanding their presence in Southeast Asia, where they hope to take advantage of rapidly growing demand for automobiles in the region. While Bridgestone has had a long history in Asia, Sumitomo Rubber and Yokohama Rubber are building their first full-scale plants there.
Sumitomo Rubber, jointly with Jakarta-based Indomobile Investment Corp. and Sumitomo Electric Industries Ltd., Sumitomo's largest shareholder, is building a $120 million tire and golf ball plant in Cikampek, Indonesia. Production of passenger and truck tires is scheduled to get under way next April, with initial capacity of 5,000 units per day. By the end of the decade, the company hopes to raise daily capacity to 7,000 units.
(Sumitomo Rubber has license production arrangements in Malaysia and India.)
Yokohama Rubber has opted for the Philippines where it is investing $114 million in a plant located 50 miles north of Manila at the site of the former Clark Air Force base. Production is scheduled to get under way in January 1998, with initial daily output set at 5,000 units. The company plans to double that by the end of the decade.
Yokohama, which holds minor equity stake in Hankook Tire Co. of South Korea, plans to supply the local market as well as to export to Japanese auto plants throughout Southeast Asia-the world's fastest-growing market.
At present, Japanese automakers have assembly plants in 12 Asian countries, including India and Pakistan. Combined capacity of these facilities, with the largest concentration in Thailand, exceeds 1 million vehicles annually.
Not to be outdone, Bridgestone has signed a joint venture agreement with Bombay-based Associated Cement Companies Ltd. to build tires in Madhya Pradesh. Production at the new $94.3 million facility, near Indore, is scheduled to get under way in early 1998. Initial yearly capacity: 1.9 million units.
In May, Bridgestone also opened a 13-acre proving ground in Nong Khae, Thailand. Built alongside the company's 18-month-old Thai tire plant, it has a 1.6-mile oval circuit and special steering course.
Bridgestone, the dominant tire maker in the region, with manufacturing facilities in Thailand, Indonesia, the Philippines and Taiwan, opened the Nong Khae plant in January 1995. The $75-million facility, its second in Thailand, currently produces at the rate of 30 tons per day.