Michelin Tire Company

Michelin Tire Company

Introduction

This paper researches the Michelin tire company. It describes the company and provides a brief history of its operations. Then it identifies any of the sources of risk or uncertainty in its operations. Then it states there any government regulations that have affected this company’s operations domestically or abroad. After that it describes the inputs that are used in this company’s production function and identify any challenges to securing these inputs. Then it determines the company has introduced new products in existing markets or created new markets over time. After that it determines the price of its products increased or declined over time and analyzes the reasons for price fluctuations. It analyzes the company’s profitability. Identify the economy or industry influences on its costs, operations, and profitability. It describes the competitive environment in which the firm operates the distribution of market power, and the strategic behavior of the firm and its competitors. Then it Identify any non-price competitive strategies that the company might be engaging in. lastly it evaluate if the company made any mistakes in its decisions over time, and recommend any changes or improvements for the future operations and recommendations.

History of the company

Michelin Tire Company prides as global leader in the tire’s innovation, giving forward looking solution for helping the roads transportations industry in bid to attain the competitive edge as well as for meeting the ever pressing need of society for the fuel efficiency, safety along with respect for the environment. Michelin Tire Company had been 1st for patenting radial tires that had been used widely as well as popular in automotive industry. Michelin has century of innovation and progress in the tire design along with several product firsts CITATION Whe13 l 1033 (Where We Have Been, 2013).

At end of the month December 2005, the company posted thirty % growth in net income at $1.049 billion, with the over $18.40 billion in the net sales, up to 3.6% from previous year CITATION Mic131 l 1033 (Michelin Annual Report, 2006). While this industry continues for consolidating in short terms, Michelin has been continued for expanding the products line and for operating in the new regional market. Now, Michelin has global sale network in one seventy countries, seventy one manufacturing plants in nineteen countries, 6 rubbers tree plantations in the Nigeria and Brazil and extensive brands portfolio, which includes BF Goodrich and Michelin as flagship brand of company and 2 distribution networks such as TCI and Eurometer.Risk or uncertainty in its operations

Michelin Tire Company is the biggest tire maker of the world, which drew thirty five percent of 2003 annual sales from the North America. Whereas normally it would expose French company to the dollar euro currency’s exchange risk, it wasn’t worried about the exchange rate. They had compensated for loss caused through translating the American incomes in-to euros by buying the raw materials, which have been priced in the dollar.

Michelin Tire Company is old company, made on the family operation standard; aiming is for steadily growing without taking very much risks. Expanding to emerging markets now has required for securing the future’s growth as well as for keeping the position as second biggest world-wide tire manufacturer. Major threat, which Michelin faces have been raw materials supply as well as possible future shortage. Rubber is 1/3rd of cost of company, so any of the fluctuation in the rubber may affect Michelin dramatically. Through investing in the Research and development for finding the ways to secure the supply as well as finding new resource, Michelin is enforcing really the future’s largest threat. Financial stability and management, which Michelin has shown in the tough times has been re-assuring and provides the proof that Michelin adjusts quickly to situation of world’s economy & has able to keep making the profit. Government regulations that have affected this company’s operations

Michelin has needed for replacing the tires as per government regulations. Though there have been ways for identifying which specific tires have been affected, rule of recalls is that tire recall has done through date code.

It applies to the cars. Though cars can VIN, recall has done through VIN range & not through the individual vehicle. When car does not have specific part on this, this is not a part of recall, and the way this has stated identify what the vehicles have been affected such as the vehicles with four speeds automatically transmission, and many more. Only as they may identify the individual transmission, recall has stated like affecting them all.Inputs that are used in this company’s production function

Michelin Tire Company has backed by extensive portfolios of the brand, which broaden the premium territory to the other segment. Productivity achieved in current years has made this possible for profitably growing such brands at the faster pace.

With the brand’s portfolio, the company may serve the motorist requirements across market, including the sports model as well as SUV with the BF Goodrich, mid range segment with 2 strong regional brands such as Uniroyal in the North America and Kleber in the Europe and entry level segment with Kormoran, Tigar, Taurus and Riken brands, every in the respective market. Boosted through development of the automotive as well as road transport in the fast growing region, Tier 2 along with Tier 3 segments account for forty percent of global tire’s market. Positions of Michelin in such segments have been being deepened and broadened with the dedicated brand that derive competitive benefit from the performance and from the production techniques that comply with the values of the company.

In the Europe, the production capacity might be doubled at plant in the Romania and Serbia that manufacture already twelve million tires for such segments. In the Asia, Michelin has been expanding by partnerships.

In the China, joint venture has set-up with the Double Coin Holdings Ltd. And Shanghai Huayi Group Co. for manufacturing the car along with light truck tire and for marketing these locally under Warrior brands. This will operate plant recently being built in the Wuwei Anhui province approx. four hundred kilometer west of the Shanghai. Michelin owns forty percent of venture and Chinese partners sixty percent.

Presenting total costs of the CNY three billion, approx € 390 million from which forty percent has committed by Michelin, project eventually produces up fifteen million Warrior brand tires in one year.

Recent Michelin plants in the China can be used for producing Michelin brand tire for China market. Using such similar business model, the other partnerships can be formed for driving fast growth.The company has introduced new products in existing markets

Michelin Tire Company not just is in rubber and tire business, for several years, now it has published Michelin Green and Red Guides with maps. Red Guide is guide book for restaurants and hotels that in the starting had been only such located in the France. Now such guides have been published the grading food as well as lodging to many places across world. Green Guides have been for the tourism. Michelin publishes map of the areas like European countries, France, Thailand, Africa and US. Michelin made Via Michelin digital map service, which gives travel and mapping solution for mobile, internet and satellite navigational product with the street level coverage of the Europe, US, Australia as well as parts of the South America and Asia.

The other way the company stays at top of market is variety and globalization. Michelin is largest tire manufacturer of the world; this has production plant in the Germany, France, USA, UK, Brazil, Canada, Japan, Thailand, Italy as well as many other countries CITATION EPS13 l 1033 (EPSA, 2013).  In correlation with the new tire’s production, the company produces own rubber for the new tire along with retread facilities. It vast span of the countries this manufactures each possible kind of tire of any form of the transportation imaginable, including the automobiles, airplanes, earthmovers, bicycles, heavy-duty trucks, farm equipment, motorcycle and space shuttle. It enables the Michelin for being profitable in many areas of business and adjusts to changing market at any of the time and pushes consistently the competitor for keeping up. Price fluctuations 

Tire that becomes un-serviceable because of condition covered through such workmanship as well as material limited warranty can be replaced with comparable new Michelin tire, and free of charges, when two third of inch or less of original treads has worn, and within twelve months of date of the purchase. Balancing and Mounting of tire has included. We pay cost of any of the other service charge as well as applicable tax. If more than two third of inch of the original tread has worn or after twelve months from the date of buy, we should pay cost of comparable new Michelin passenger on the pro rata base.

Retailer determines the charges through multiplying % of actual usable tread worn through recent sale price at adjustment locations or price in current Michelin Base Pricing List whichever is less. Determine charges through multiplying % of the mileage received through recent actual sale price at adjustment location or price of tire in recent Michelin Base Pricing List whichever is less. Such list has based on pre-determined pricing intended to represent fairly actual sale price of tire. We pay cost of balancing, mounting and any another dealer services along with applicable taxes.Company’s profitability

Operating profit EBIT and EBITDA

2010 2009 2008 2007 2006 2005

EBIT 1695 862 920 1645 1338 1368D&A 965 940 928 823 871 803EBITDA 2660 1802 1848 2468 2209 2171

We see from Cash-Flow statement, which EBITDA accounted before nonrecurring income as well as expenses in the year 2010 for €2,660 million. It presents increase of the €858 million in comparison to the year 2009, in the line with variation of the operating profit. From such data, we know that Michelin is considering profitable financing process, production unit’s performance has being sufficient for creating the wealth. Such wealth has been going for being allocated in various parts like net financial expense, nonrecurring item as well as corporate income tax.

Net financial expense of Michelin reflects financial policy of the company through reflecting the size of debts burden as well as levels of the interest rate. For the year 2010, Michelin financial expense presented €229 million and it decreased when we has compared this to the year 2009, where the financial expenses had been up-to €258 million. 

2010 2009 2008 2007

Cost of Net Debt -236 -292 -330 -294Other financial income and expenses 10 40 -3 29Share of profit and loss from associates 29 9 10 17Net financial expense -197 -243 -323 -248

When we have looked at number, we can see that financial expenses of company dramatically decreased, beginning from the year 2009. It is largely because of reduction of cost of the net debt, such as there is good cooperation with the banker and has good borrow capacity. Additionally, we may see will for becoming much independent through becoming more & more self financed. Control of the levels of the debt has really rigorous because of fact that even when major share holders have been institutions, Michelin remains based on family business model, such as this is much concerned on the long run growth rather than on the maximization of the profit in short term.

The 2nd element for considering while analyzing the operating income is non-recurring items as well as items particular to the consolidated accounts. Though, such information isn’t displayed through company and we may guess that this isn’t relevant to the analysis.Following on this, we take deep look in-to corporate income tax. Income tax has been very much volatile. In fact the company Michelin is parent company of the tax group, which comprises fourteen French subsidiaries. Every subsidiary pays when it paid income tax on standalone basis and it remains recorded in-to the company income.

Competitive environment

Michelin Tire Company operates in competitive market with many competitors, which is either from the Europe or from the emerging countries. The 4 major producers are Michelin, Bridgestone, Goodyear along with Continental that have been counting for above fifty percent in world-wide market. 

Though, new entrant like Yokohama, Sumitomo, Hankook as well as coming from the Asian countries gained rapidly the market shares. Such companies focus often on specific area offering good value for the money with the lower quality product.

Michelin had owned eighty four production sites world-wide, most of these located in the Europe. Though, Michelin has begun construction of three production sites in the India Chennai, China Shenyang and Brazil Pau Brasil for total investments of two billion euros. This must enhance production capacity in such countries through eighty percent till 2016 as well as offer tire at competitive price as per low purchasing power of such countries. It will be affected by low cost brand of the Michelin known as Warrior that is well known in the Asia.

As many countries have been becoming more environmental friendly, Michelin should anticipate vote of the law for protecting environment particularly in the North and Europe America, 2 largest markets in the terms of the sales. Through enhancing the production of the eco friendly tire, they could be able for facing new environmental needs from the organism, government and even from the car manufacturer partner, which are investing already in the hybrid as well as less polluting trucks and cars. Tires companies, which aren’t anticipating such changes, wouldn’t survive in such high competitive market.Non-price competitive strategies that the company might be engaging in

There isn’t much scope for the non price competition in the pure competitive market. In general, the companies try for distinguishing the product from the competitors through advertising the unique features. This is tough for doing this with the commodity product. In the pure competition market, the firms might emphasize the length of the time in business and choose prime location for distinguishing themselves.

For the replacement tire of the passenger car as well as light truck, global market has been shown modest values along with volume growths since starting of decade. It has occurred in face of enhancing product costs and input because of rubber prices and rising energy. Looking forward the global average price is likely for decreasing with the increasing competition and as the companies have been becoming vertically integrated, this can be possible for keeping the costs down; as the global demand can remain high, outlook for market is positive.

After trying decade, once again outlook for tire as well as rubber market is positive because of strategic acquisition, innovative solution along with re-invigorated customer demand. Therefore, market has concentrated. Bridgestone is leading player with twenty percent market’s share while Michelin closely follows with twenty percent. 66 percent of total revenues of the market have been generated through 4 leading players in industry. A reason for such level of the consolidation is that market fairly has low margin. OEM (Original equipment manufacturer) market has dominated through few big buyers automobile manufacturers, who have placed the pressure on the tire manufacturers for innovating as well as keeping the prices down. Small companies unlikely have been for competing due to insufficient scale economy for coping with big buyers. As after market has many buyers, biggest tire companies have been active in OEM as well as aftermarkets.Company made any mistakes in its decisions over time, and recommendations

There is not sufficient investment in the Research & Development for resolving the raw material as well as innovation problems. There is high competition from the Asian producer practicing low pricing strategy. There is also a threat to company for failing to change. Competition has been fierce and lead the industry such as company should be innovative as well as given best products, services and quality at best price in every market segment, which this decides for serving, the company seeks for offering best solution. So, in several markets like passenger car, truck as well as agricultural vehicle, this implements multi brand strategy adapted for broad range of the requirements of customers.

With status, Michelin has already throughout world; promoted new tire won’t be complicated.   All this has required is little bit of focusing as well as effective marketing research & application for the Michelin for emphasizing the position in auto industry.   

Michelin is un-disputed leader in most demanding technical segment along with designs forward looking solution for helping road transportation industry in bid for continually improving competitive edge as well as for meeting modern societies for pressing requirements for the fuel efficiency, safety and respect for environment.

References

BIBLIOGRAPHY l 1033 EPSA. (2013). MICHELIN. Retrieved August 4th, 2013, from http://www.epsaonline.com.ar:

http://www.epsaonline.com.ar/page.php?section=3

Michelin Annual Report, 2006. (n.d.). Retrieved August 4th, 2013, from

http://www.michelin.co.jp: http://www.michelin.co.jp/var/michelin_site/storage/original/application/8d9af45a43829145d8ee033c3ab5027a.pdf

Where We Have Been. (2013). Retrieved August 4th, 2013, from http://www.michelinman.com:

http://www.michelinman.com/about-us/where-we-have-been.page