Bridgestone Fire “Will Impact On Earnings”

Early in September, a major fire broke out in Bridgestone’s Tochigi factory in Kuroiso City, 150 km north of Tokyo. The factory is located in a residential area and more than 5,000 local residents were evacuated, spending the night at public facilities as firefighters battled to control the blaze. Some members of the public suffered minor eye and throat irritation, but there were no reports of serious casualties.

At its height, 128 fire engines, over 1,000 firefighters and a firefighting helicopter were involved in tackling the blaze and, 24 hours after the fire began, it was under control, though still not totally extinguished. The Tochigi complex opened in 1971 and covers 510,000 square metres. 850 workers are employed at the plant, all of who were evacuated safely, and products include tyres for passenger cars, trucks and monorails. Around 6,700 tons of tyres a month were produced at the factory, or some 13 per cent of Bridgestone’s Japanese production.

One estimate was that, of 250,000 tyres stored near the plant, 150,000 had been destroyed, as well as extensive damage to the production facility itself. Even before the fire was completely extinguished, industry pundits and investors were debating the possible knock-on effects for the Japanese manufacturer. Mitsubishi was reported as saying that it expected stocks of Bridgestone tyres to be depleted after 16th September, at which date it would seek to source tyres from other manufacturers. On the other hand, Toyota said that it did not expect the fire to disrupt operations and the company would “get tyres from other production sites”.

Bridgestone has eight other tyre plants in Japan and the company said that overtime and weekend work would be necessary at these and other factories in southeast Asia. This may be easier said than done, as recently Bridgestone said it wanted to increase production capacity at plants in Japan (including Tochigi) and elsewhere in the world. These factories were said to be already running at full capacity and Bridgestone had earmarked $773 million to fund this expansion.

Impact on earnings

Company spokesperson Setsuko Ozaki admitted that there would be some effects on customers, but added that Bridgestone would do everything in its power to minimise these. Speaking the day after the fire, she continued: “We have no idea when production will resume or how big a blow the fire will have on our earnings, but with an incident this big, there’s bound to be some impact.”

Analyst for the Deutsche Bank, Kunihiro Matsumoto, predicted that the impact on Bridgestone would be small, given the number of factories (40+) that the group could call on worldwide. A one-month closure of the plant would reduce operating profit by only $8.6 million, he added.

One immediate effect of the fire was seen at the Tokyo Stock Exchange, where Bridgestone’s shares were down seven per cent at one stage, against a market average that rose by two per cent. By contrast, shares in rival tyre manufacturers Yokohama and Sumitomo Rubber Industries rose by over five per cent.

Whether the closure will be longer than one month will only be known when the true extent of the damage has been assessed, although some reports say that the factory’s rubber mixing facility – where the fire is believed to have started – will have to be completely rebuilt. In the meantime, Bridgestone will incur increased shipping and labour costs as it attempts to make up the shortfall.