Bearish Production Outlook Playing Out

Bridgestone will close it s passenger car tyre production facility in Bari, Italy, by the first half of 2014. The company cites increased competition from tyre manufacturers in emerging markets, which are more cost competitive. BMI believes that Italy's labour market remains relatively uncompetitive and rigid ( see 'Economy To Flatline In 2013', September 12 2012 ), and production and manufacturing will continue to suffer.

Bridgestone says the closure of the production facility will not have an effect on its other sites in Italy, including the Bridgestone Technical Centre Europe facility near Rome and the sales office of Bridgestone Italia, in Monza.

Italian Production

BMI has maintained a fairly bearish view on Italian auto suppliers based in the country due to the declines in passenger car production. With Fiat 's decision to consolidate manufacturing in the country, however, we have revised our longer-term production forecasts, and expect to see sustained growth ( see 'Fiat Credit Rating Downgrade Commensurate With BMI View', February 27 ).

As with other markets, we believe that this increase in production volumes will have a positive impact on the supplier segment, and we expect to see some investment in the country's supply chain. We caution, however, that the country's manufacturing sector remains uncompetitive owing to restrictive labour laws and high wages.

BMI had previously stated that this bearish environment may mean that some manufacturers (who previously had sites in the country, but moved them elsewhere to match the shift in production - chiefly to emerging Europe, where wages are more competitive), will be reluctant to move back to the country, and may choose instead to import parts. This is in line with Bridgestone's strategy.

European Sites

The company still has seven other sites in Europe - in Spain, France, Poland, and Hungary. Broadly, BMI maintains a bullish outlook for production in these markets as wages are more competitive and labour laws somewhat less rigid ( see 'Nissan Invests Following Wage Deal', February 5 ).

Further, we have long maintained that, as vehicle manufacturers continue to shift their strategic focus away from Western Europe and towards higher growth markets in Central and Eastern Europe, suppliers will increasingly consolidate their production sites in these markets.

Suppliers In Europe

BMI believes that vehicle suppliers across Europe are less impacted by the regional downturn in sales, and many are reporting growth in profit margins (or smaller decreases than vehicle manufacturers). Indeed, Bridgestone reported global net profits in 2012 of JPY171.6bn (US$1.8bn), compared with JPY103bn (US$1.1bn) in 2011. Much of this has been due to increased demand in Japan and the US.

This article is tagged to:
Sector: Autos
Geography: Italy

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