AKRON—The staggering rate of capital investments in the tire industry the past several years has eased to an extent, but spending by most of the major tire makers remains relatively high, averaging about 7 percent of sales. Estimated spending on new plants or capacity expansions announced in the past 12 months dipped to about $1.4 billion, down from about $2 billion in 1997-98 and $3.6 billion in 1996-97.
The majors' continued high rate of capital spending largely reflects the completion of projects announced in previous years. At the same time, the pace of acquisitions and alliances has picked up, balancing the equation somewhat.
Leading the acquisition parade is Goodyear's wide-ranging alliance with Sumitomo Rubber Industries Ltd. to take control of Sumitomo's Dunlop tire activities in North America and Europe.
Goodyear is paying $936 million outright, and the companies are swapping stock as well, but neither side has commented on possible additional investments once the deal is complete.
Beyond the Sumitomo pact, Goodyear's spending patterns the past year have been punctuated with postponements.
First, the company revealed it was delaying completion of its state-of-the-art car tire plant in Brazil—due to local conditions—then more recently pulled the plug on a $57 million capacity expansion at its Valleyfield, Quebec, car-tire plant in favor of increased imports from South America.
Goodyear announced the latter project in April after withdrawing $40 million in investments budgeted for the firm's Freeport, Ill., plant because of an impasse with the union local there.
Besides Goodyear, Continental A.G. has been particularly active. It took over Gentyre Industries Ltd. in South Africa and Compania Industria de Llantas/Euzkadi in Mexico, and announced new plants in Slovakia and Romania, for truck and passenger tires respectively. The new facilities represent investments of $120 million.
The company also is building a satellite factory in Brazil and evaluating several industrial projects in India.
A joint venture or partnership in Russia is thought to be near completion. On the down side, Conti is closing a car tire plant in Scotland.
After several years of spending relatively little on new facilities, Pirelli S.p.A. delved into two major expansions, budgeting $255 million to double the size of its Izmit, Turkey, plant and spending an undisclosed amount to buy control of Egypt's Alexandria Tyre Co. Ltd.
Pirelli also is interested in obtaining a manufacturing base in Asia—perhaps in partnership with its new ally, Cooper Tire & Rubber Co. Pirelli has been identified as one of the companies still discussing a possible link with South Korea's Kumho Industrial Co. Ltd.
Group Michelin, a heavy spender in the 1995-1998 period with nearly $1 billion in North American projects alone, upped the ante again with its mid-August announcement to invest at least $400 million in South Carolina through 2004 to expand seven factories and build a semi-finished products plant.
In addition, Michelin took an aggressive stance in Latin America, taking over Colombia's Icollantes S.A. and budgeting $165 million to build a new passenger tire facility and expand truck tire capacity in Brazil.
Michelin also intends to build its Asian presence, but publicly denied reports it was discussing a takeover of Japan's Yokohama Rubber Co. Ltd. Overall, spending by major companies was up considerably last year over 1997.
Seven of the 12 largest makers chalked up double-digit growth—led by Continental's 47-percent increase. But the ``second tier'' Japanese companies showed the effects of the Asian economic flu—Sumitomo and Toyo Tire & Rubber Co. posted declines in capital spending, while Yokohama's spending rose only slightly.
Bridgestone led the major companies in capital spending, devoting 9.8 percent of sales revenue in 1998 to investments. Korea's Hankook Tire Co. Ltd. spent 9.7 percent and Michelin 8.7 percent.