Following Bridgestone and Goodyear, French tire giant Michelin also announced price increases in recent days. Michelin China stated that it has decided to increase the price of replacement tires for all its cars and light trucks. Its three brands: Michelin, Huili, Bailuchi, have risen by between 3% and 7% depending on different product specifications. The price increase will be implemented in June 2008.
The big three tire giants all said that this round of price increase was forced by the substantial growth of raw materials, and enterprises could not absorb cost pressures due to their own strength and could only adopt price adjustment measures.
Michelin's first quarter declines
Due to rising raw material prices and continued appreciation of the euro against other currencies, Michelin’s performance fell in the first quarter of this year. Michelin also lowered its expectations for the full year results.
In the first quarter of this year, Michelin's operating income fell by 2.6% year-on-year to 4.1 billion euros. The main reason is the rising costs and the weak tire market in Europe and the United States, while the appreciation of the euro against other currencies also offsets the increase in sales of Michelin in some regions and the increase in unit price.
At present, the price of natural rubber has risen by 22% from the average price of last year. The price of petroleum-derived products such as synthetic rubber has also been rising due to the impact of soaring crude oil prices. Rising raw material prices will increase Michelin’s production costs by 600 million euros this year compared to last year, and it is difficult for tire prices to make up for the cost increase.
In the face of such a severe market situation, Michelin's expectations for this year's performance are no longer as optimistic as it was in February. The company estimates that its turnover this year will only increase slightly, and its operating profit will barely maintain its level last year.
Auto parts companies have strong impulses for price increases
Tire companies are unceremoniously releasing cost pressures to the market, and auto parts companies have a strong impulse for price increases.
At present, the most frequent price increase in the market is automobile tires. Since the beginning of this year, tire manufacturers have adjusted the product prices several times. From February 1, Michelin has raised the price of engineering tires and industrial tires in the United States and Mexico with an average price increase of 3%; Bridgestone has adjusted prices of its branded car tires and truck tires since March and raised prices. The rate is 3% to 5%. U.S. Continental Group, which produces horse brand tires, also announced a price increase for tire products in the first quarter of this year. Hankook Tire announced that it plans to increase the price of tires sold in the Chinese market from February to February, with a margin of approximately 5% to 8%.
The price of auto parts, including tires, has generally risen by more than 20% in the after-sales service market, and parts and components companies have also started actions for vehicle manufacturers. Michelin also adjusted the pricing system for the customers of complete vehicles, namely the vehicle manufacturers. Since April 1 this year, Michelin will begin implementing a new price system for customers supporting cars and light truck tires globally. Recently, some spare parts companies have submitted price increase applications. Once these new orders are confirmed by vehicle manufacturers, they may affect the profits and vehicle prices of auto companies in the second half of the year.
Car prices will not adjust prices, but will reduce the price reduction
Bridgestone China stated that the price increase did not have a negative impact on its sales in the last two months. Judging from the current data, sales went smoothly as planned at the beginning of this year.
CITIC Securities researcher and automotive analyst Li Chunbo believes that the continuous rise of raw materials to the downstream companies is an inevitable trend. However, judging from the current increase, it will not affect vehicle companies. Previously, in the case of a 20% increase in the cost of steel, passenger cars are still not adjusted, so the increase in tyres should not be enough to affect the price. However, auto makers may ease the pressure of rising raw materials and increased competition by reducing price cuts.
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