Tire makers take action amid COVID-19's fiscal damage

AKRON — Tire makers large and small are implementing a range of measures designed to mitigate the expected financial impact of what many see as the potential for a deep and drawn-out pandemic-induced recession.

Among the measures many have taken include scaling back capital spending, reducing dividend payments, implementing temporary cuts in salaried employees' pay, etc. etc.

Tire Business has compiled a summary of company efforts:

• Reduced scheduled capital expenditures for 2020 by $550 million, or approximately 28% lower than spending in fiscal 2019;

• Reduced the dividend submitted to shareholder approval by $365 million, or roughly 48% from that proposed earlier;

• Suspended a share buyback program, except for the firm commitments outstanding for 2020;

• Took efforts to reduce overhead costs; and

• Initiated tracking of supply and demand on a weekly basis to keep inventory under control.

In addition, Michelin Managing Partners Florent Menegaux and Yves Chapot took 25% salary/benefits cuts for April and May and members of the company's executive committee reduced their remuneration by around 10% during the same period.

These reductions will be continued as long as Michelin employees are in partial activity due to the COVID-19 health crisis, the company added.

Michelin also stated it believes it has sources of financing in place to deal with the uncertainty surrounding the crisis, citing financial stress tests based on volumes declining by between 20% and 35% over the full year that show that the company has sufficient cash and cash equivalents, without drawing down its confirmed back-up lines of credit.

• Implementing "cash-oriented" business management approach based on various short-term scenarios;

• Looking at current crisis as "opportunity for drastic reforms" for the medium- to long-term perspective and "fundamental competitiveness" in order to be prepared for market conditions post-pandemic; and

• Developing "flexible" management structures that account for various risks and on measures to minimize immediate damage to business.

• Furloughed an undisclosed number of employees, cut its marketing budget, reduced capital expenditures by more than $100 million and leveraged government assistance; and

• Issued $800 million in new senior notes, the proceeds of which are being used to repay/redeem outstanding notes due in mid-August and for general corporate purposes.

Continental

• Adjusted working times along with wage and salary costs (In Germany, for example, about half of the employees were registered for short-time work);

• Took measures to optimize working capital and postpone investments;

• Cut capital spending 26% in the first quarter and targeted a 20% reduction for the fiscal year;

• Adapted research and development processes and priorities to cut costs without affecting customer projects; and

• Targeted a 5% drop in fixed costs throughout the year.

• Reduced planned capital investment spending nearly 60% to $145 million;

• Canceled the 2019 dividend;

• Reduced compensations for the board, the CEO and the top management of the company. Executive vice chairman and CEO Marco Tronchetti Provera will take a 50% cut in gross fixed annual compensation. Remuneration of Pirelli board members will be cut by 50%, while the gross fixed annual salary of company managers will be reduced by 20%; and

• Reduced discretionary costs, revised marketing and communication activities, renegotiated contacts with suppliers and prioritized research and development investments.

• Reduced working capital, capital expenditures and discretionary spending;

• Reduced salaries for executive leadership and the majority of salaried employees, and reduced cash retainers for members of the board of directors;

• Suspended discretionary pension contributions and company contributions to employee 401(k) plans; and

• Furloughed an undisclosed number of hourly and salaried employees.

• Scaled back capital expenditure plans by about a third to between $140 million and $160 million.

• Fortified short-term liquidity through optimal fund raising;

• Pared cash expenditures by deferring capital spending and trimming costs; and

• Reduced compensation for directors, officers, associate officers and managers.