Tyre makers slashed capital spending in '08-'09

ERJ staff report (TB)

By Bruce Davis, Tire Business staff

Akron. Ohio -- In line with the slumping global economy, tyre makers worldwide have reduced their capital spending since last August, committing only $2.4 billion in the past 12 months to capital improvements, a quarter of the $9.6 billion budgeted in 2007-08.

The biggest spender is Group Michelin, which committed nearly $700 million in the past year to capital expenditures, although a significant chunk of this is tied to restructuring and at least two plant closings, according to ERJ's analysis of tyre company expansion projects announced in the past year.

At the same time, though, Michelin has nearly halved its capital spending budget for fiscal 2009 to about $1 billion as it focuses on cash flow.

If myriad media reports from India are included, Michelin may be budgeting up to $1.4 billion there over 10 years to build a truck tyre plant and distribution infrastructure to go with it.

Pirelli Tyre SpA ranks second in budgeted spending with $565 million, almost entirely for two projects: $350 million over five years at tyre and steel cord plants in Romania and $200 million through 2011 to modernise car and motorcycle tyre capacities in Brazil.

At the same time, Pirelli plans to phase out tyre production at its Manresa, Spain, plant before year-end as part of a plan to cut employment in Europe by 1500.

Included in the investments budgeted in the past year are four new tyre plants, by Apollo Tyres Ltd. and Ceat Ltd. in India, Michelin in Brazil and Yokohama Rubber Co. Ltd. in Russia.

Capital spending in fiscal 2008 by the major tyre makers that publish their data was a mixed bag, some up and some down. On average, the 15 companies for which data were available invested 7.5 percent of sales back into their companies for capital improvements. This actually was up slightly from 2007 and 2008, but the trend so far in 2009 is for drastically reduced spending.

Bridgestone topped the spending table with $2660 million invested, although Nokian Tyres P.L.C., MRF Ltd. and Apollo Tyres Ltd. were more intense, devoting 16.8, 10.1 and 10.1 percent, respectively, to capital expenditures in their respective fiscal years. Bridgestone's ratio was 8.5 percent, although spending in the tyre business unit was stronger at 10.1 percent of sales.

Spending on research and development by the 20 firms that provided data was up to 3.5 percent from 3 percent, as 13 of the 20 increased their R&D investments during the year.

Continental AG was the biggest spender on R&D, devoting $2190 million, or 6.2 percent of sales, to the practice. Conti's tyre divisions, on the other hand, devoted 2.5 percent of sales to R&D. Shandong Linglong Rubber Co. Ltd. and Kumho Tire Co. Inc. devoted 5 and 4.9 percent, respectively, on R&D spending.

More on this story in the next issue of ERJ

From Tire Business (A Crain publication)