PARIS—Group Michelin, facing intensified competition from Goodyear and Bridgestone Corp. in its home market, will close some plants and cut employment in Europe by 7,500 jobs in the coming three years in an effort to improve productivity. The cuts, representing about 10 percent of Michelin's European work force, were disclosed along with the firm's first-half results, which saw earnings up nearly 20 percent on a 3.8-percent sales gain.
The job cuts are designed to help Michelin raise the productivity of its European factories by 20 percent over three years, as part of an effort to increase its profitability. For the half-year, Michelin's operating earnings-to-sales ratio was 9.4 percent, while the net-to-sales ratio was 4.9 percent, both improvements over the fiscal 1998 ratios.
``In the period of worldwide consolidation that all business sectors are currently experiencing, it is imperative that we strengthen our leadership and efficiency,'' the company said in a prepared statement. ``In contrast with other times when we were fighting for survival, we must now work towards tomorrow's improvements.''
From a sales-per-employee perspective, Michelin is the least productive of its major competitors, achieving only $109,064 in sales per worker last year.
By comparison, Bridgestone Corp.'s average is $174,639, Goodyear's is $140,550 and Continental A.G.'s is $141,174.
Thirty-seven of Michelin's 64 tire plants—including six dating from the 1930s or earlier—are in Europe, which accounted for 53.5 percent of sales in fiscal 1998 and where nearly 59 percent of its 127,241 employees are located.
The only plant targeted for closing thus far is a 450-employee bicycle tire factory of its Wolber S.A. subsidiary. The company also plans to discontinue some as-yet-unspecified technical and service activities.
The restructuring efforts will result in exceptional charges against earnings, but Michelin declined to specify the amount. The charges are expected to be taken this year. The bulk of the job cuts are expected to involve early retirement incentives, a company spokesman said.
Michelin said the restructuring coincides with an effort to fortify the company's multi-brand strategy in Europe and gain share in certain markets, particularly the higher value-added segments such as performance and truck tires.
For the six months ended June 30, Michelin reported a 19.8-percent gain in net earnings, to $349.4 million, or 4.9 percent of sales. Operating earnings were up 19.6 percent, to $665.1 million, or 9.4 percent of sales.
The sales revenue increase, to $7.06 billion, was based on a 4.3-percent gain in unit sales and particularly aided by the robust North American economy.
Michelin increased investments 57.7 percent to $832.3 million.