European Autos Conference Feedback

Results have been published from the seventh Annual Morgan Stanley European Auto Conference. And an interesting industry overview came from both Continental and Pirelli.

Continental’s CFO, Dr Alan Hippe gave an overview of the company’s major business and an update on the decision to close tyre production in Mayfield, whilst Pirelli commented on its North American business strategy.

The volume of growth of Continental’s passenger tyre business has remained at the first quarter level of five per cent. The company also stated that early indications suggest that its winter tyre season should also be positive. Continental will target sales of a minimum of 14 million winter tyres, (last years volume level) and expects 50 per cent of its sales to come from its new TS810 winter tyre products.

Now that the decision to close tyre production in Mayfield has been confirmed, Continental is negotiating with unions to establish severance conditions. The group will experience charges of 120 million Euros, (£80.2 million) relating to this action. Of this amount, 90 million Euros will be taken from the second quarter and 15 million Euros for each of the remaining quarters this year. The company estimates total cash costs in the region of 50 to 100 million Euros, and states that the majority of this cost will be taken in 2004.

Dr Hippe recognised that Continental’s guidance is “typically conservative,” and said that there would be further assessment of the group’s 2004 targets following second quarter results.

Pirelli commented on its growth in performance towards North America. The company is using its production base in Latin America as well as its existing US MIRS plant in Georgia, in its strategy to better serve performance tyre markets of North America. Pirelli’s management is targeting a three per cent overall share and 12 per cent performance tyre share by using the Pirelli brand and relying on its independent dealer channel. It also expects net pricing to be firm until early 2005. Primarily Pirelli believes that growth in demand will continue above five per cent and that supply is running near full capacity. Further price increases in the second half of this year, of two to three per cent are predicted.