French tyre maker Michelin warns of declining sales

French tyre 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 US 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, has said.

“Given the significant decline in the passenger-car and light-truck and truck-tyre 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 such as Volkswagen and Daimler struggle to adjust to tougher emissions testing in the EU.

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Those problems will last through the rest of the year, as VW Group has said it may not meet delivery targets and BMW will reduce output. The trouble in Europe has compounded existing issues includig trade friction and a slowdown in China, and is spilling over to suppliers such as Michelin.

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

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 has 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 tyres and a rebound in mining tyres.

The company reported on Thursday that group sales fell 1.1 per cent in the first nine months to €16.2 billion ($18.6 billion). The slump in western Europe was caused by changes in emissions testing standards, while demand in China fell by 5 per cent. – Bloomberg