FRENCH tyre giant Michelin’s move to close its Dundee factory could save more than £40 million of the £87m it wants to cut from its costs by 2020
An analyst’s report dated November 5 – a day before the company’s 850 staff in Dundee were officially given the news – said the “announced planned Dundee plant closure supported ML’s [Michelin Ltd] intent to accelerate cost savings during 2019-20”.
Financial group Jefferies International said the shutdown was in line with Michelin’s 2020 plan.
“Much of the disappointment on Michelin’s revised guidance was based on underperformance on net cost savings,” it said. “While higher cost inflation played a big part, not accelerating its cost savings in 2018 put a big dent in investor sentiment.
“The announcement of the Dundee plant closure should be seen as another sign of ML’s commitment in delivering more than €100m [£87.3m] net cost savings over 2019-20.
“With 845 jobs to be affected, the plant closure could lead to €40m to €50m [£34.9m-£43.6m] savings by end 2020.”
The action group set up by Finance and Economy Secretary Derek Mackay to come up with a viable alternative to Michelin’s closure plan meets for the first time tomorrow in Dundee.
The company has said that one of the factors behind its decision to close its Scottish plant was cheap Asian imports of the smaller tyres in which the Dundee factory specialises.
In a statement, it said: “Despite the group’s continuous efforts, and the factory employees’ dedication to making the site economically sustainable through the implementation of several action plans – €70m [£61.1m] has been invested in recent years to modernise the site – the accelerated market transformation has made the plant unsuitable and its conversion is not financially viable.”
One tyre industry insider told The Sunday National they were surprised the facility had lasted so long.
“They make 16-inch premium tyres in Dundee and they come at a price,” they said. “But the market’s being flooded with cheap Asian imports – from China for instance – they’re selling smaller tyres for as little as $19 [£14.60] each. They couldn’t possibly make the tyres at that price.
“When you look around the UK you see tyre manufacturing has been disappearing over the years. Goodyear-Dunlop in Birmingham shut shop about four years ago, and just last month Cooper-Avon’s American owners said they were shutting their factory in Wiltshire and cutting 300 jobs.’’
The insider was also sceptical about Michelin’s rejection of any suggestion that the closure was linked to Brexit.
Michelin in Dundee produces more than five million tyres in a year and, if the UK were to be treated as a “third country” after Brexit, the tyres it exported to Europe would be subject to a tariff of around 4.5% according to World Trade Organisation data.
The insider told The Sunday National: ‘‘I know Michelin said the closure is nothing to do with Brexit, but I think Brexit was the catalyst.”
Drew Scott, Professor of European Union Studies at University of Edinburgh Law School, also suspected Brexit was a factor.
He told The Sunday National it would be difficult for Michelin to lobby against cheap imported tyres from a third country “... if they too found themselves producing tyres in a third country [which is what Scotland would become] post Brexit.
“The tyre industry in Europe is heavily lobbying to protect against Chinese imports – they’re what concerns them,” he said.
“If you’re lobbying to get protection for your industry and you’ve got a production facility in a third country to begin with, it’s a bit dodgy to say we should stop third country imports.
“There’s a logic there that if you have a tyre plant in Britain that’s not in the EU, it’s very difficult to lobby against third countries if you’ve got a big production plant in a third country.
“I’ve always felt that one of the problems with Brexit is why would a multinational company reside in Britain outside the EU if half its energy is spent actually lobbying the European Union for regulations that suit it?
“It’s not the future relationship that may be concerning them it’s the no deal and the length of time that may be worrying them.
“It’s a fair surmise that Brexit must be in the mix somewhere.”
Whatever way you look at it the Dundee operation is a small wheel in the huge Michelin machine. The company has 34 sites across Europe employing 38,000 people; 15 sites in North America with 16,000 workers; eight Asian sites with 12,000 employees; four sites in South America with 5763 workers.
Jefferies International said investors remained hopeful that Michelin would eventually close the gap on its European peers, largely by improving its cost base.
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