| BUSINESSWEEK ONLINE : OCTOBER 4, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Letting Some Air Out of Michelin How un-French: The tiremaker is cutting jobs and costs When 2,000 angry workers rallied outside the headquarters of Michelin in the French town of Clermont-Ferrand on Sept. 21, they plastered over street signs along Edouard Michelin Avenue, renaming it Full Employment Avenue. The workers have no quarrel with the tiremaker's founder, for whom the street was named. But they're hopping mad at his grandson and namesake, a quiet, balding 36-year-old who became CEO in June. He has ignited a firestorm by announcing the elimination of 7,500 jobs, 10% of the company's European workforce. Politicians across the spectrum, from communists to conservative President Jacques Chirac, are also attacking the plan. They're particularly galled that Michelin announced the cuts on the same day that it reported a 20% increase in profits for the first six months of 1999. ``We didn't renounce the dictatorship of the proletariat just to replace it with the dictatorship of the shareholders,'' Socialist Prime Minister Lionel Jospin told reporters in New York on Sept. 20. PRIORITIES. What has so shocked the French is that Edouard Michelin is shaking up one of the last bastions of old-style French capitalism, a secretive, family-controlled company that has long languished near the bottom of France's CAC 40 stock index. Although firm numbers are unavailable, the family is believed to control 35% of the company. ``Too often in the past, we thought that if we made a profit, even if it was only 0.3% of sales, everything was fine. That's so French!'' Michelin told local journalists. Now, he is serving notice that he cares more about productivity than preserving labor peace. Even if the furor blows over, he has his work cut out for him. In February, Michelin was displaced as the world's biggest tiremaker when U.S.-based Goodyear Tire & Rubber Co. merged with Japan's Sumitomo Rubber Industries Ltd. Now, the giant is driving straight into Western Europe, which accounts for half of Michelin's sales. Goodyear posted a 5.1% sales increase in Europe during the first six months of the year, while Michelin's European sales were flat. Most of all, Michelin needs to cut costs as auto manufacturers demand ever-deeper discounts from tiremakers. The company has 127,000 workers, vs. Goodyear-Sumitomo's 105,000, even though its $14.6 billion in annual sales are $1 billion less than its rival's. The new CEO has made an encouraging start. To bolster European sales, he is introducing a wider product range, including previously unavailable lower-priced brands. He is investing $400 million to expand manufacturing in the U.S., where sales have grown 4.3% this year, vs. only 2.7% for Goodyear, and labor costs are 20% less than in France. Industry-watchers have had their eyes on Edouard Michelin since the early 1990s, when he ran the company's truck-tire business in the U.S. and helped oversee the integration of Uniroyal Goodrich Tire Co. after Michelin acquired it in 1990. His mentor there was Carlos Ghosn, a tough manager who went on to become a star cost-cutter at Renault and is now restructuring Nissan Motor Co. Already, Michelin has brought in younger faces to replace several senior executives. And in June, he invited industry analysts to a briefing and factory tour in Clermont-Ferrand--the first time since 1994 that the company has held such a meeting. Investors are impressed: Michelin's stock is up 35% this year, more than twice the average 15.9% rise on the CAC 40 index. That's good news for the new CEO, because he's going to need to raise money for an acquisition. Even if he achieves his goal of increasing European productivity 20% over the next three years, Michelin needs to boost sales in other markets to keep pace with Goodyear-Sumitomo and Japan's Bridgestone Corp. Although Michelin has 14% of the North American passenger market, it has less than a 5% share in Asia. Michelin could still face headaches in France. Socialists in parliament are already pushing legislation to deny the tiremaker state aid it would ordinarily receive for early retirements and worker retraining. And while fewer than 5% of Michelin's French workers took part in the one-day work stoppage, labor unrest could worsen. Edouard Michelin may not win any popularity contests in France these days, but one day he could be remembered as the CEO who saved his grandfather's company. By Carol Matlack in Paris _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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