Michelin Scraps Plans For Second Mexico Plant

PARIS - August 29, 2008: Marcel Michelson writing for Reuters reported that Michelin of France on Friday scrapped plans for a $740 million second plant in Mexico due to slow demand for tyres in North America.

Carmakers are battling weak mature markets of the United States, Europe and Japan. Toyota Motor Corp, on Thursday cut its 2009 vehicle sales forecast by nearly 7 percent. [ID:nT6192]

Michelin, one of the largest tyre makers in the world, has already embarked upon a 500 million euro cost savings programme to offset slowing economies, lower dollar prices and a rise in the cost of rubber and steel.

It said in August 2007 it would build a plant in the Mexican state of Guanajuato to supply the North American market.

A spokeswoman said the plant would have employed 1,300 and have made tyres for 4x4 cars, passenger cars and vans.

"It is negative news because it means they do not see a rebound in the U.S. market and therefor they don't need another plant to make 15 million tyres per year, but it is positive because they can use the money to invest elsewhere, like in Asia," said analyst Gaetan Toulemonde at Deutsche Bank.

US Sales Down

According to data on the Michelin website, total sales of passenger tyres to carmakers were down 14.9 percent in June compared with a year ago in North America while the market for replacement tyres there was up 1.1 percent.

Year to date, passenger car tyres were down 12.2 percent and replacement tyres 1.7 percent.

On July 30, Michelin reported a bigger-than-expected decline in first-half operating income and reduced its 2008 profit target on an expected greater impact from raw material prices, but kept its 2010 objectives.

Michelin said it has a market share of 17.2 percent, equal to Bridgestone of Japan and ahead of Goodyear's 16.0 percent.

It did not give the market share of Continental, which is also active in other car parts and which has accepted a a takeover approach by private ball-bearings group Schaeffler.

Michelin is also suffering from exchange rates which depressed first half group sales by 5.9 percent in the first half.

Michelin shares have lost 43.3 percent this year. The company has a market capitalisation of $9.3 billion versus $13.3 billion for Bridgestone.

The top Japanese tyre maker last month posted a worse-than-expected 18 percent drop in first-half operating profit.

Editing for Reuters by David Cowell