AKRON (Aug. 31, 2005) — The world's major tire makers, led by Bridgestone Corp.'s unprecedented $2 billion in announced capacity expansion projects, have committed nearly $4.4 billion in tire plant capital expenditures in the past 12 months, including $1.2 billion or more to projects in China.
The amount of spending budgeted during 2004-05 was more than double that disclosed during 2003-04 and the most since 1996-97 when Tire Business tracked $3.6 billion in capacity expansion projects. The figures are disclosed in the Tire Business “2005 Global Tire Report,” published Aug. 29.
In addition, Hankook Tire Co. Ltd. is scouting sites in eastern Europe for a plant, for which it is has budgeted a reported $500 million to $600 million, which would bring the collective investment scenario to nearly $5 billion.
About half the projects announced are in Asia, with nearly $1.2 billion going to China, according to the data. Another $1 billion-plus—not counting Hankook's project—is earmarked for projects in eastern Europe and $680 million for Brazil, underscoring the industry's drive for production sources in lower-cost areas.
By contrast, there has been only one capacity increase of consequence announced in western Europe and none in the U.S. or Canada. Bridgestone Americas' $220 million passenger tire plant project in Mexico is the only one of consequence in North America.
The projects represent nearly 150,000 units in new daily—or more than 50 million units a year—capacity to come on stream in the coming two to three years, according to a summary of the projects. This added capacity is not being offset to any great degree by plant closings.
Bridgestone's projects alone represent more then 45,000 units of new daily capacity to come on stream in the next two years. Depending on the mix, this would approximate $1 billion to $1.5 billion in new sales.
Group Michelin was the second most active investor, disclosing $617 million in the period for four separate capacity expansion projects. Michelin budgeted $450 million in 2003-04.
Pirelli S.p.A. also disclosed four expansion projects, for which the firm has budgeted $434.5 million.
Yokohama Rubber Co. Ltd. and Goodyear announced two projects each, valued at $202 million and $138 million, respectively.
Within the capital spending matrix, investments in OTR tires—which are in short supply—stand out. The majors have scheduled more than $650 million in spending for new OTR tire plants and/or expansion of capacity.
In terms of annual capital spending, the world's largest tire makers last year invested on average 6.1 percent of their sales revenue back into their corporations, up from about 5.5 percent in fiscal 2003.
South Korea's Hankook Tire Co Ltd. led the pack with a 13.8-percent investment ratio, ahead of Nokian Tyres P.L.C. at 9.6 percent and Yokohama at 9.3 percent. Goodyear, whose capital spending is limited due to bank covenants, trailed the pack at 2.8 percent.
The majors invested 3.1 percent of their revenue into research and development during 2004, essentially unchanged from 2003. Group Michelin and Continental A.G. were ahead of the average at 4.2 percent; India's MRF Ltd. and Cooper Tire & Rubber Co. were on the low end, devoting just 0.6 and 0.9 percent of sales on R&D.
A summary of the major projects is included in the Aug. 29 issue.