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Michelin Says Price Cuts Are Unlikely Until Late 2009
Oct. 17 (Bloomberg) -- Michelin & Cie., the world's second- largest tiremaker, is unlikely to cut prices until the second half of next year because declines in raw material costs will take time to show up in its books.
Falling energy and commodity prices in the past few weeks ``will have an effect, but only in the second half of 2009 at the earliest,'' Managing Partner Didier Miraton told reporters today near Michelin's Clermont Ferrand, France, headquarters. ``It will have consequences for our production costs and our ability to modify pricing, but there will be a considerable delay.''
Michelin, squeezed by carmakers' demands to cut prices as vehicle sales drop, is betting on a decline in raw-material costs to help earnings next year, Chief Financial Officer Jean- Dominique Senard said Oct. 3. Natural-rubber futures fell to a three-year low yesterday and have dropped 55 percent from a 28- year high reached June 30, while crude oil is down 51 percent from a record $147.27 a barrel on July 11.
The company scaled back its 2008 margin outlook in July, the second cut in three months, and reduced European and U.S. market forecasts after material-cost increases wiped 334 million euros ($449 million) from first-half profit. Michelin is now targeting operating profit approaching 8.6 percent of revenue this year, down from an earlier 9.8 percent margin prediction.
Michelin rose 29 cents, or 0.7 percent, to 41.50 euros in Paris trading. The stock has dropped 47 percent this year, valuing the tiremaker at 6.02 billion euros.
Savings Target
The tiremaker, which also owns the B.F. Goodrich and Uniroyal brands, said on Oct. 1 that it had already achieved one- third of a targeted 1.5 billion euros in cost savings for 2010. Michelin announced North American capacity cuts and the scrapping of a proposed Mexican plant on Aug. 28. The company said earlier this month that it's in ``advanced discussions'' on a new Indian factory and plans to raise production in Brazil.
An expansion of Michelin's Russian plant is ``something we have to look at'' as long as that market continues to grow, though there are no firm plans at this stage, Chief Executive Officer Michel Rollier said at a separate briefing.
The tiremaker is cutting production by about 10 percent in the second half of this year. Rollier said he doesn't foresee an improvement in the U.S. truck-tire market in the first six months of 2009, and a recovery may not take place at all next year.
Continental AG Role
Michelin may be interested in the tiremaking and rubber- parts businesses of Hanover, Germany-based Continental AG, should controlling shareholder Schaeffler Group put them up for sale, Rollier said, declining to say whether any talks have been held.
A purchase would pose European Union antitrust issues and ``probably'' be impossible to fund under current credit-market conditions, Rollier said. ``If there were an acquisition, we could not finance from our own cash,'' he said. ``We would need external finance.''