Although more and more tire buyers may be thinking in terms of saving their pennies during the current economic downturn, that isn't affecting the Michelin brand, according to the tire maker's top North American executives.
Some tire buyers may want to economize, said Dick Wilkerson, CEO of Michelin North America Inc., and Scott Clark, COO of Michelin Americas Small Tires. Nevertheless, they told Tire Business the Michelin brand continues to increase its market share despite the bleak economic picture.
This isn't as contradictory as it sounds on the surface, as tire buyers looking for the cheapest tire aren't in the same market as buyers who insist on the Michelin brand, Messrs. Wilkerson and Clark said.
“Not all consumers are created equal,” Mr. Clark said. “Different consumers have very different needs. There's no question there are a lot of consumers looking for the cheapest tires they can find. But we clearly see in the Michelin brand's performance that certain customers, despite the economic environment, remain committed to buying the best tires they can find.
“There are also the customers who, before they make any big-ticket purchase, want to make sure they're getting the best return they can on their money, and that also benefits the Michelin brand,” he said. “Some consumers are trading down, but some are trading up, which is why Michelin continues to gain market share.”
In a recent interview with the Greenville News, Mr. Wilkerson was quoted as saying tire buyers were “fleeing to value” nowadays in their growing support of the Michelin brand.
Also, at the 25th annual Clemson University Tire Industry Conference held at Hilton Head Island, S.C., in early April, Mr. Wilkerson reaffirmed his company's commitment to the Michelin brand and to continued product development and North American manufacturing.
“We manufacture 90 percent of the products we sell here in this zone,” he said at the Clemson conference.
Outlook for BFG, private brands, Chinese tires
Although Michelin will close its BF- Goodrich tire plant in Opelika, Ala., by the end of October, the move shouldn't be taken as a step toward phasing out the BFG brand, Mr. Clark said.
“We're adjusting our inventories on all brands, so that's no commentary on the BFG brand,” he said. “We continue to invest in the BFG brand—it's a very important brand for us.”
Regarding private and associate brands—both Michelin's and other companies'—Mr. Clark does not see any major movement in the near future.
“If you go back and look at the last 10 or 15 years, you will see no significant swings in the private brand market, one way or the other,” he said. “You don't see dramatic shifts in Tier 4.”
There have been some dramatic shifts in the past in Tier 2 and 3 brands—involving lower-profile brands, such as BFGoodrich and Yokohama, and emerging brands from China and elsewhere—but Mr. Clark said he did not see any dramatic shifts in those markets on the horizon.
Chinese-made tires have increased as a percentage of the market, but not in absolute numbers, according to Mr. Clark. The market picture for Chinese tires is less clear than it used to be, he said, because so many tire makers that manufactured private- and associate-brand tires in North America now make them in China.
“We don't see private and associate brands growing significantly, which is another way of saying we don't see Chinese tires growing significantly,” Mr. Clark said. The U.S. market share for Chinese-made tires will remain under 30 percent, he said.
First-quarter 2009 sales results for Michelin, reported April 29, showed the company's North American OE sales down 52 percent and its replacement market down 11.8 percent.
But those results will not cause any changes in Michelin's corporate emphasis, Mr. Clark said. “The Michelin brand is performing very well, and we continue to focus on innovation and building our brands.”
When asked how the turmoil at General Motors Corp. and Chrysler L.L.C. would affect Michelin, Mr. Wilkerson noted that OE contracts at the Detroit Three auto makers comprise less than 5 percent of Michelin's business.
Michelin's future: Constant improvement
In his Clemson speech, Mr. Wilkerson said Michelin is doing what it can to reduce costs—but not in research.
“Our people know their security is based on continuous research and innovation,” he said. “Just being good is not good enough; what's good today is acceptable tomorrow, which is unacceptable next week.”
Expanding on those remarks in an interview with Tire Business, Mr. Wilkerson acknowledged that some paths of product research don't always pay off, at least initially.
“If you look at the development of the radial, you could make a case that it wasn't cost-effective at first,” he said. “It was a very costly investment, and the response of American tire makers at the advent of radialization was that it wasn't worthwhile to change.”
But obviously, in the end, the expense was worth it. “You have to keep focusing on what your customer needs and what innovations you can bring about that your customer will value,” Mr. Wilkerson said.
Michelin obtains a lot of advantages from manufacturing most of the tires for a given market in that market's zone, according to Mr. Wilkerson. “The supply chain is shorter, the response to customers is improved, and it acts as a hedge if you manufacture in the same zone as your customers,” he noted.
In both the Clemson speech and in comments to Tire Business, Mr. Wilkerson stressed the need to make hourly employees feel as respected personally—and as invested in the success of the company—as front office personnel. In the economic downturn, that policy will not change, he said.
In the past few months Mr. Wilkerson has visited every North American Michelin plant, going down to the shop floor to talk to workers directly about how the economic downturn is affecting the company.
“At one plant, the comment I received most often was, 'Thank you for letting me work at Michelin. I believe in this company.' This was coming from people whose work hours had been reduced. What they saw was that everybody is sharing in the difficulties—that we are all in it together.”