Michelin expects 'robust' long-term outlook for tire industry

Clermont-Ferrand, France – Groupe Michelin foresees a robust outlook for the tire industry in the medium and long term, despite a sharp decline in demand caused by Covid-19 health crisis.

While the first six months of 2020 saw tire demand “severely depressed”, Michelin said it remained “convinced of the validity of its strategic model and, with the underpinnings of its business still robust.”

In the medium to long term, the need for mobility remains robust, led by two main factors of population growth and urbanisation, Michelin said in its half year results 27 July.

The French group noted that so far, the greatest uncertainty concerns future passenger demand for air travel, but said it was is too soon to say whether the crisis will have a lasting impact on travel spending and practices. 

But Michelin said the uncertainty would not impact the group greatly as commercial aviation accounted for only about half of its aircraft tire revenue, which itself represents less than 10% of the Michelin specialty businesses.

The segment, which represents mining, agriculture and construction, two-wheel and aircraft tires, performed relatively stronger than other Michelin businesses in the first half, with sales down 14.3% year-on-year to €2.5 billion in the first half. 

The decrease primarily reflected the 15.0% drop in volumes, led above all by the construction tire segment and the OE business as a whole. 

Segment operating income fell 35% to €375 million, according to Michelin.

In the passenger car and light truck segment, OE demand dropped after vehicle manufacturers suspended production, while the replacement market saw “a historic collapse” due to travel restrictions.

Segment sales fell 22.3% to €4.4 billion during the first six months of the year, reflecting a 24.3% decline in volumes.

Sales dropped in all regions, including North America, Europe and China which saw 21%, 19% and 15% declines respectively.  

Segment operating income went into negative territory at €35 million, down from €585 million reported a year before. Operating margin stood at -0.8%. 

In truck tires, Michelin said OE demand had started its expected cyclical downturn when the health crisis pushed it into a steeper decline.

Replacement markets, it added, were hit hard by the sharp decrease in demand for freight services.

The second quarter, however, saw a very strong 45% rebound in OE demand in China, bringing sales figures for the region to the positive territory by 6% in the first half. 

The segment’s reported operating income of negative €30 million, down from €279 million in 2019, with operating margin of negative 1.3%.