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Michelin scraps Mexico plant plan due slowdown

Michelin of France on Friday scrapped plans for a second plant in Mexico due to slow demand in North America.

Carmakers are battling with slowing demand in the mature markets of the United States, Europe and Japan. Toyota Motor Corp, on Thursday cut its 2009 vehicle sales forecast by nearly 7%.

Michelin, one of the largest tire makers in the world, has already embarked upon a cost savings program to offset slowing economies, lower dollar prices and a rise in the cost of rubber and steel. It said in August 2007 it would build a plant in the Mexican state of Guanajuato to supply the North American market. Michelin said productivity gains and additional investment in existing North American facilities would enable it to respond to continued strong demand for high-performance and large-diameter tires. All of Michelin’s other investment projects in North America will continue, the company said.

According to data on the Michelin website, total sales of passenger tires to carmakers were down 14.9% in June compared with a year ago in North America while the market for replacement tires there was up 1.1%. Year to date, passenger car tires were down 12.2% and replacement tires 1.7%.

On July 30, Michelin reported a bigger-than-expected decline in H1 operating income and reduced its 2008 profit target on an expected greater impact from raw material prices, but kept its 2010 objectives. Michelin said it has a market share of 17.2%, equal to Bridgestone and ahead of Goodyear’s 16.0%.

It did not give the market share of Continental, which is also active in other car parts and which has accepted a a takeover approach by private ball-bearings group Schaeffler.

Michelin is also suffering from exchange rates which depressed first half group sales by 5.9% in the H1 due to a low dollar, pound sterling and Mexican peso versus the euro. Michelin shares have lost 43.3% this year and the company has a market capitalization of $9.3 billion versus $13.3 billion for Bridgestone. The top Japanese tire maker last month posted a worse-than-expected 18% drop in H1 operating profit. (Reuters)