Michelin Warns of Drop in Demand, Sending Tire Maker Shares Down

(Bloomberg) -- French tire maker Michelin warned of declining sales in Europe and China in the second half of the year, dragging down shares of its competitors in the U.S. and Europe.

Demand for Michelin’s products fell in Western Europe because of new emissions-testing standards that have dented car sales, and dropped off in China as its auto market slumped, the company, based in Clermont Ferrand, France, said Thursday.

“Given the significant decline in the passenger-car and light-truck and truck-tire markets late in the third quarter and the further weakness expected in the fourth quarter, the group has revised its 2018 markets scenario, notably in China,” the company said.

European car sales have gyrated wildly in recent months, as carmakers like Volkswagen AG and Daimler AG struggle adjust to tougher emissions testing in the European Union. Those problems will last through the rest of the year, as VW has said it may not meet delivery targets and BMW AG will reduce output. The trouble in Europe has compounded existing issues like trade friction and a slowdown in China, and is spilling over to suppliers like Michelin.

The French company’s announcement, made late Thursday, sent shares of Michelin tumbling as much as 7 percent in early Paris trading on Friday, while German rival Continental AG slipped 0.9 percent. Michelin has lost about 21 percent since the start of the year.

U.S. competitors Cooper Tire & Rubber Co. and Goodyear Tire & Rubber Co. Goodyear fell 4.8 percent and 4.3 percent, respectively, in New York on Thursday in response to Michelin’s warning.

Pirelli Statement

Italian tire maker Pirelli & C. SpA distanced itself from Michelin’s warning. Chief Executive Officer Marco Tronchetti Provera confirmed profit targets, citing a strong market in China and more than 10 percent volume growth for its high-end tires. The supplier to luxury brands including Ferrari and Bentley doesn’t see any slowdown even next year, Tronchetti said in an interview with Bloomberg News. Pirelli was down 2.7 percent in Milan on Friday.

Michelin now expects a slight increase in volume over the full year because of major price increases in response to currency depreciation in emerging markets.

Cie. Generale des Etablissements Michelin, as the company is formally known, has been cutting costs amid fierce competition and plans to shed some 2,000 jobs by 2021, mostly in France. It’s been increasing prices to compensate for higher costs for raw materials such as natural and synthetic rubber, and was benefiting from improving demand for large vehicle tires and a rebound in mining tires.

The company reported Thursday that group sales fell 1.1 percent in the first nine months to 16.2 billion euros ($18.6 billion). The slump in Western Europe was caused by changes in emissions testing standards, while demand in China fell by 5 percent.

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