Few would disagree that Michelin North America Inc. (MNA) has outperformed the market the past few years, and MNA's top executive, Jim Micali, said the reason for it is relatively simple: attention to detail, perserverance and a little luck.
``We like to think that we make a quality product,'' Mr. Micali said. ``No compromise.
``As a result, over time, through boom times and recession, people will recognize that and respect your brands and buy them.''
Over the past three to four years, MNA and Cooper Tire & Rubber Co. are the only two major tire makers to earn money in North America, and Mr. Micali, president and chairman of MNA for the past eight years, told Tire Business the company expects earnings to be better again next year. That's despite a raft of external factors over which MNA has no control-the escalating price of oil, rubber, chemicals and steel, the fluctuating dollar exchange rates, etc.
One thing the company does have control over, though, is its internal costs, and Michelin took greater control over this aspect earlier this year with renegotiated labor contracts at its four unionized BFGoodrich plants-in Opelika and Tuscaloosa, Ala., Fort Wayne, Ind., and Kitchener, Ontario.
Michelin expects to save $50 million to $60 million annually in operating costs because of the new contract, which Mr. Micali called ``pioneering'' in terms of the scheduling flexibility it allows. This change in turn will help make these plants more competitive in terms of cost and efficiency with Michelin's non-union plants.
In return for the work rule and other changes affecting flexibility, MNA agreed to invest $150 million over four years in the plants to upgrade them to make more higher margin products, such as larger diameter sizes, he said. The agreements also provide plant security during the contract term, guarantee no layoffs except by ``normal attrition''' and protect at least 90 percent of ticket items in the individual plants.
These changes will help Michelin continue to make tires in North America for North America, Mr. Micali said.
``We felt if we sat down with the union in a constructive way and explained to them (the situation),'' he said, ``we could arrive at a contract that would give these plants a fighting chance to become profitable. These plants were at a `Rubicon' (point of no return) in terms of profitability, but now we think they can be (profitable)...if we get full contract implementation and the savings we think should come out of there.
``Hopefully we've explained to employees and the USWA (United Steelworkers of America),'' he continued, ``our goal is not to close plants but keep them operating. But we needed some substantial changes in order to make them profitable. We are not going to keep operating unprofitable plants.''
The changes negotiated primarily involve work rules, including greater use of ``contingent employees''-essentially part-time workers.
``By being able to use contingent employees,'' Mr. Micali said, ``we can adjust a plant's production to market movements. If the market moves up, you can move up with it.''
The contract also provides for a five-year wage progresssion program for new hires-up from three years previously-and greater individual responsibility for health care and pension programs. The latter will help offset to a degree what Mr. Micali calls ``legacy costs,'' that is, benefits for 10,000 Uniroyal Goodrich Tire retirees as well as for the 3,500 current BFG employees.
In general, manufacturing in North America is ``challenged,'' Mr. Micali said, not only because of low wage offshore competition, but also because of the inflationary effects of health care, pension costs and other legacy costs.
``There's a finite limit to how much a plant can bear, even if you're operating at full capacity,'' he said, ``You can't carry that kind of burden.''
As for the luck part of the equation, MNA's ``right sizing'' campaign in the fall of 2001 to reduce its payroll by 2,000 coincided with the economic slump brought on by the aftershock of the 9/11 terrorist attacks.
``It wasn't enjoyable (cutting jobs),'' Mr. Micali said. ``It never is. But it was absolutely necessary.'' MNA achieved nearly all the cutbacks through early retirement and other voluntary separation programs, he said.
Those cuts also overlapped with a five-year $400 million-plus investment program the firm is just finishing up.
In addition to that program, MNA in the past several years has opened radial earthmover and agricultural tire plants in Lexington, S.C., and a semi-finished components plant in Starr, S.C. It also recently disclosed $31 million in investments in its Bridgewater and Waterville, Nova Scotia, plants.
While MNA's efforts are focused on domestic production for the domestic market, the company also uses Group Michelin's global resources for certain products. However, Mr. Micali stressed, the company is not actively looking to increase its outsourcing of supply from overseas-despite several contracts in hand for BFGoodrich brand tires to be made overseas-in Indonesia, South Korea and/or China, for example.
``Would you bring in some?'' Mr. Micali asked hypothetically. ``Sure. Would you bring in those at the lower price points? Yes. We'll move as many or as few tires from Asia to North America as we need.
``But if we can manufacture here profitably, who wants to pay for transport and customs duty? All things being equal, the supply chain is much more stretched bringing in (product) from Asia or South America...or eastern Europe.''
Michelin, which gets significant exposure internationally from its participation in high-profile motorsports such as Formula One and World Rally Championship, doesn't get the same push in North America, where the motorsports enthusiasts are more enamored with stock cars, Indy-type open wheel racing and drag racing.
These major American racing venues are tied up in exclusive tire supply agreements-Goodyear with NASCAR, Firestone with Indy Racing League and Bridgestone with Champ Car, for example-leaving Michelin with lesser known opportunities, like the American Le Mans endurance road-racing.
At the same time, Michelin has turned to alternative marketing opportunities-the professional golf tournament in Las Vegas, the Uniroyal youth soccer support program, the support of the American Humane Association's Red Star program, etc.-to promote its brands.
``It's difficult in any tire market, especially in North America, to spend the time, effort and resources to educate the customer as to a tire's role in vehicle performance and safety,'' Mr. Micali said. ``Yet that's the message we have to get out.''
Mr. Micali, 57, has been with Michelin since 1977, starting in legal counsel positions in the U.S. and France before becoming general counsel of MNA in 1985.
He held various positions in Michelin's North and Central American geographic areas before becoming an executive vice president for legal and finance in 1990.