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Tire makers cut capital spending to $2.4 billion

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AKRON (Aug. 31, 2009)—In line with the slumping global economy, tire makers worldwide have reined in their capital spending since last August, committing only $2.4 billion in the past 12 months to capital improvements, a fourth of the $9.6 billion budgeted in 2007-08.

The biggest spender is Group Michelin, which has committed nearly $700 million in the past year to capital expenditures, although a significant chunk of this is tied to restructuring and at least two plant closings. At the same time, though, Michelin has nearly halved its capital spending budget for fiscal 2009 to about $1 billion as it focuses on cash flow.

If myriad media reports from India are included, Michelin may be budgeting up to $1.4 billion there over 10 years to build a truck tire plant and distribution infrastructure to go with it.

Pirelli Tyre S.p.A. ranks second in budgeted spending with $565 million, almost entirely for two projects: $350 million over five years at tire and steel cord plants in Romania and $200 million through 2011 to modernize car and motorcycle tire capacities in Brazil.

At the same time, Pirelli plans to phase out tire production at its Manresa, Spain, plant before year-end as part of a plan to cut employment in Europe by 1,500.

Included in the investments budgeted in the past year are four new tire plants, by Apollo Tyres Ltd. and Ceat Ltd. in India, Michelin in Brazil and Yokohama Rubber Co. Ltd. in Russia.

Capital spending in fiscal 2008 by the major tire makers that publish their data was a mixed bag, some up some down. On average, the 15 companies for which data were available invested 7.5 percent of sales back into their companies for capital improvements. This actually was up slightly from 2007 and 2008, but the trend so far in 2009 is for drastically reduced spending.

Bridgestone topped the spending table with $2.66 billion invested, although Nokian Tyres P.L.C., MRF Ltd. and Apollo Tyres Ltd. were more intense, devoting 16.8, 10.1 and 10.1 percent, respectively, to capital expenditures in their respective fiscal years. Bridgestone's ratio was 8.5 percent, although spending in the tire business unit was stronger at 10.1 percent of sales.

Spending on research and development by the 20 firms that provided data was up to 3.5 percent from 3 percent, as 13 of the 20 increased their R&D investments during the year.

Continental A.G. was the biggest spender on R&D, devoting $2.19 billion, or 6.2 percent of sales, to the practice. Conti's tire divisions, on the other hand, devoted 2.5 percent of sales to R&D. Shandong Linglong Rubber Co. Ltd. and Kumho Tire Co. Inc. devoted 5 and 4.9 percent, respectively, on R&D spending.

The budgeted investments, by company, are summarized as follows:

Aeolus Tyre Co. Ltd.

* $14.4 million in radial OTR tire capacity, 150,000 units annually, at its Jiaozuo, China, plant; due on stream by February 2010.

Apollo Tyres Ltd.

* $200 million toward doubling the capacity of a new factory under construction in Chennai, India, to 3,000 truck and bus units a day along with an undisclosed number of OTR tires;


* $98 million to boost capacity for passenger radials at its Bridgestone (Wuxi) Tire Co. Ltd. plant in Wuxi, China, by nearly 54 percent to 12,000 units daily by the second half of 2011.

Ceat Ltd.

* $140 million for a radial tire plant in India's Gujarat State that eventually will make up to 500 metric tons of passenger, light and medium truck tires a day. The first phase, with a daily capacity of 100 to 150 tons, is due on stream in June 2010, with about 1,000 employees.


* $15 million to add capacity for radial truck tires at its plant in Cuenca, Ecuador. ERCO—Compania Ecuatoriana del Caucho S.A.—is a Continental A.G. subsidiary.

Cooper Tire

* $37 million to improve infrastructure and buy machinery and equipment at its Findlay, Ohio, tire plant.


* $250 million to expand/improve OTR tire production at its Topeka, Kan., plant. The state of Kansas is pitching in $14 million for training.

JK Tyre & Industries Ltd.

* $96.5 million to double radial truck/bus tire capacity at its Mysore, India, plant to 800,000 units a year and to expand OTR tire capacity at the plant.

Kenda Rubber Industrial Co. Ltd.

* $23 million to open a motorcycle tire and tube plant in Tianjin, China. Further expansion and investment is anticipated.


* $140 million-plus on R&D activities and to streamline its business in France. Included in the investment will be improvements at the firm's R&D center in Clermont-Ferrand, dedicating the firm's plant in Montceau-Les-Mines, France, to OTR tires and rubber mixing, move passenger tire capacity from that plant to other plants in western Europe, and dedicate a plant in Tours, France, to heavy truck tires.

* $172 million to build a car tire plant in Itatiaia, Brazil, due on stream by the second quarter of 2011. It will be Michelin's second plant in this city near Rio de Janeiro and will employ 200.

* $250 million-plus over five years to upgrade tire plants in Italy, including phasing out passenger tire capacity at the Turin/Stura factory by year-end 2009 and expanding capacity "significantly" at a plant in Cuneo.

* $13 million to expand steel cord capacity at plant in Tuscaloosa, Ala.

* $60 million to expand its tire plant and logistics center in Olsztyn, Poland.

* An undisclosed sum to double capacity for large radial aircraft tires at its Bourges, France, plant. Michelin did not disclose details of the expansion at Bourges, where capacity is listed as 6,000 units a day of passenger, light truck and aircraft tires. The project will last through 2012.


* $200 million through 2011 at plants in Brazil to expand capacity for car and motorcycle tires there by 20 percent.

* $15 million to boost production capacity at its Rome, Ga., tire plant 20 percent in 2009 by installing a fifth MIRS automated production line.

* $350 million over five years at plants in Romania to increase tire and steel cord capacity and enhance the firm's competitiveness. Pirelli did not quantify the scale of the expansion at its 2-year-old Slatina tire plant, which is slated to make 5 million passenger tires a year by year-end 2009.

Sumitomo Rubber

* $56 million for an 86,000-sq.-ft. tire technical center at its Kobe, Japan, headquarters as part of its 100th anniversary celebration this year.

Triangle Group Co. Ltd.

* An undisclosed sum to add 5 million units of annual truck/bus and 2 million units of annual car tire capacity.

Yokohama Rubber

* $150 million for a passenger tire factory in Lipetsk, Russia, that should be in operation with 1.4 million units of annual capacity by the third quarter of 2011.

* $31.5 million through year-end 2010 to boost annual capacity at its Hangzhou Yokohama Tire Co. Ltd. plant in Hangzhou, China, 37 percent to 4.1 million units.

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