While slack demand for tires in OECD countries has meant production has fallen by a third in the past few months, growing sales in India have underlined how the heavily protected market has continued to flourish behind trade barriers and protectionism. With banks untouched by the crisis experienced by those in the west and manufacturing much more focused on domestic consumption, India’s automotive sector in particular has seen impressive growth with backlogs developing for many new models like the Nano. In such an environment, Michelin’s decision to set up a major new tire manufacturing operation near Chennai comes as no surprise even as the firm lays off 2,900 jobs at home in France. Michelin is the world’s largest or second largest tire manufacturer (vying for the top spot with Bridgestone) with plants in some 21 countries and the surprise is more that they didn’t do this sooner. The initial US$870m investment is planned to bring the plant on stream by 2012 and focus on radial tires for trucks and buses, as Indian sales increased 52% in October over a year earlier. Later expansion will widen the range into cars and two wheelers.
Prashant Prabhu, Michelin’s president for Africa, India and the Middle East is quoted in the FT as saying. “With the accelerating development of road and highways infrastructure and the number of ongoing road development projects, India is on course to offer customers the opportunity to extract the full value from radial tires, Interesting comment that, atrociously poor roads and slow traffic have meant in the past it really didn’t make much difference what kind of tire you used. The older cross ply or more modern radial, most locally produced tires have been cross ply in India. But as infrastructure development adds new highways, repairs existing ones and removes bottlenecks, the expectation is volumes, distances and speeds will all increase.
Michelin is setting up their new factory on a 290 acre industrial park near Chennai, home of India’s automotive industry but also convenient for exports. The plan, according to the India Times, is to export half the tires to local markets. With cheap labor, regionally local raw materials like rubber and resins and a steel industry able to domestically supply wire products, India’s Chennai makes a logical production hub for regional sales. No details have been released as to production volumes or the demand for steel wire products will generate in the local market but Michelin’s decision is a reflection of the growing maturity of the Indian auto industry and the role the country is growing into as a regional hub for automotive parts.