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Using innovation to defend margins, the Michelin’s way

— PHOTO: V. SRIDHAR

BIG IS ALSO BEAUTIFUL: Michelin’s 63 inch tyre, the biggest tyre in the world made for Caterpillar trucks.

The automobile sector has been among the hardest hit industry segments during the ongoing global economic downturn. Suppliers of components to vehicle manufacturers have taken a hit because of the slowdown. Faced with a slump in demand, companies are finding it difficult to protect margins.

Michelin, the second biggest tyre manufacturer, with a track record of innovation extending over a century, has also suffered a setback. In France, Michelin’s home base, output in the automobile sector fell by 3.1 per cent in September when compared to a year ago. French carmakers, among them Renault and Puegeot, have shut plants and sent workers home, implying that the slump will not only be deep but will also last long.

How does Michelin plan to cope with the slowdown? Senior company officials told journalists recently that it intended to dig deep into its legacy as an innovator to protect margins in turbulent times. The company’s global centre for innovation is located at Ladoux, near Clermont Ferrand, where Michelin is headquartered. Clermont Ferrand is about 425 km south of Paris. The tyre may be a marginal component in an automobile but is a critical factor in fuel efficiency in a vehicle. Michelin’s Managing Partner Didier Miraton points out that about one-fifth of the fuel consumed by a car is linked to the tyre. In trucks and tractors, it is about 30 per cent.

As consumers become more energy conscious, as they have in the wake of the recent spiral in oil prices, tyre companies are under pressure to not only cut costs but also make them energy-efficient.

He observes that Michelin is a “technology company” because technology plays an important role in ensuring that the tyres it makes are constantly improving in terms of fuel-efficiency and safety. Mr. Miraton explains: “The manner in which the tyre grips the surface determines how the vehicle brakes and accelerates.” The other challenge for tyre makers is the constant search for better, particularly lighter, raw materials so that they are lighter but tougher. These properties ensure that the tyre is more fuel-efficient while also conserving scarce raw materials. “About 60 per cent of the noise caused by a vehicle is from the contact of the tyre on the road,” says Mr. Miraton. He points out that when electric vehicles, which have less noisy engines, are on the roads in greater numbers, the noise generated by the tyre will constitute a much bigger proportion of noise generated by vehicles.

There are at present about 900 million vehicles worldwide, up from 50 million vehicles 20 years ago. It is expected that the global vehicle population will touch 1.5 billion. Michelin’s objective is to halve fuel costs when the vehicle doubles in a few years from now. “Our key objectives are to halve consumption of raw materials that go into tyres, halve noise generated by tyres and to halve braking distance to increase safety by that time,” says Mr. Miraton.

The key to achieving these ambitious objectives is to reduce the mass of a tyre, which will improve fuel consumption. Mr. Miraton says this can only be achieved by forging “partnerships with suppliers, government and public authorities, universities and research institutes.”

Michelin’s 63 inch tyre, the biggest tyre in the world, is an example of basing innovation on partnerships. The company developed this earthmoving tyre, made specifically for Caterpillar’s 797B, the gigantic trucks that work in some of the biggest open-pit mines, in close association with the truck manufacturer.

Michelin and Caterpillar worked in a “parallel format”, which meant that Michelin’s manufacturing facility in Spain was being built even as the product was being developed at the company’s facility near Ladoux near Clermont Ferrand. The R&D facility, which is the Michelin’s global innovation centre, employs over 4,000 people working full-time on every conceivable aspect of tyre technology.

Mr. Miraton observes that the “big leaps” in technology must come from advances in either the tyre architecture or from changes in the tyre’s physical and chemical properties. He says the company is now operating in “an extremely volatile environment.” But he is hopeful that the company will be able to weather the storm because more than 60 per cent of the company’s business is from the replacement market for tyres. “The crisis is going to impact everyone, but we are hopeful that we will ride the storm,” he says.

Michelin is in “an advanced stage of negotiation on setting up a tyre plant in India.” “The short-term situation does not change our picture of India,” he says.

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