One-On-One With Michelin SA’s MD Gilles Boudou

(Douglasdale, South Africa/S.A. Treads) A man who first started his tyre career with Michelin 19 years ago as a sales representative and went on to become familiar with every aspect of the business, from the tyre manufacturing process to servicing the commercial sector, marketing and communications, now heads up Michelin Tyres SA.

Gilles Boudou succeeded Xavier Martinez as managing director in December 2005. A year later, he spoke with us about his impressions of South Africa, the domestic tyre industry and Michelin’s strategic plans for the region.

Gilles, a belated welcome to South Africa from us. Talk us through your early career and the road that led to your current assignment.

“I have a hands-on approach to the business courtesy of my long career with Michelin which began with the same rigorous practical training Michelin is famous for today, and progressed to the passenger, 4×4 and truck tyre sectors of the industry. I also spent two years in human resources and recruitment in France and a further two in Mexico. My current South African assignment will be my ninth position within the group.”

What are your perceptions of the country thus far?

“South Africa is such a beautiful and interesting country with a rich and diverse culture, not to mention a contentious political history. I plan to see as much of the country as possible during my stay. So far I have seen KZN, Cape Town (magnificent!), Limpopo, Swaziland, Windhoek and Johannesburg, but I’m told there are so many more beautiful spots to discover.

“From a business perspective South Africa presents some interesting challenges. I do not see a major difference between the South African and European markets, aside from a more sophisticated service culture that exists in the European commercial market. The European market is less price-driven with end users more focused on aspects such as cost-per-kilometer (CPK), tyre performance, fuel consumption and so on. That said, when it comes to passenger tyres, the level of service is higher in this country. It is interesting for me to see tyre shops – incidentally far more modern and prestigious than their European counterparts – liberally selling affiliated services like wheel alignment, cleaning of sidewalls and the like. This trend is not all that evident in Europe.”

As far as the commercial market is concerned, does Michelin support the notion of selling its product directly to the end user?

“Michelin’s philosophy has always been to sell its product through the dealer and to provide the very best support it can to its independent network of dealers. However, should an end user wish to deal directly with us by way of a CPK contract we are happy to provide this service provided certain conditions are met and respected. In France, only 10% of all truck tyres are sold via a CPK contract. Provided a fleet exhibits a high standard of tyre maintenance and the service support is excellent, a CPK contract can serve to optimize the life of a tyre, thereby dramatically reducing operating costs. In short, whilst we do not actively target end users, we are open to an arrangement of this kind if specified for. This is sensitive territory, but we would rather meet the customer’s needs than lose the sale to a competitor.”

How do the dealers feel about this arrangement?

“CPK contracts are managed and serviced directly by the dealers for a fixed price determined by Michelin. We make it worth their while to service these contracts whilst simultaneously reducing their risk of incurring bad debt.”

Are you actively promoting CPK contracts in SA?

“A select number of CPK contracts have been running since 2003 in South Africa with encouraging results. Granted, this is a small segment of our business that requires specialized expertise. To do it right both the tyre supplier and the end user need to fully grasp that when it comes to CPK contracts, the object is not to sell tyres, but mileage! A CPK contract (if correctly managed), will optimize the life of the tyre by fully utilizing the complete life of the tyre via its added features and benefits like regrooving and retreading with the Michelin Recamic process.

“CPK contracts are something I feel very passionately about, due to my vast experience in this field in Europe. For these to work effectively, dealers and end users must be properly educated. I firmly believe that only a Michelin product is made to be regrooved and can deliver the desired results.”

What is Michelin’s immediate strategy for the SA market?

“On the passenger tyre side our aim is to develop and extend our footprint in South Africa by consolidating our foundations, preserving our relationships with existing dealers and possibly affiliating ourselves with some new ones as well.”

What of the 70,000km guarantee you were offering on the Michelin Energy range of tyres? Is that still running?

“Very much so and may we say with unprecedented success! There is no risk as a Michelin Energy tyre can easily achieve a mileage of 70,000km, dealers have a unique product offering that delivers value and of course, the end user is happy to achieve this incredible tyre mileage.”

What about your aims concerning the commercial tyre market?

“As already mentioned, my long-term goal is to promote the benefits of a well executed CPK approach. Ideally, this would involve the end user buying an overall package consisting of a new Michelin tyre, regrooving that tyre, and once the original tread has worn down, retreading the casing with a Recamic tread. This will not happen overnight and it will take time for mindsets to shift and for end users to abandon the notion of buying only on price, and rather focus on the lowest CPK and improved fuel consumption.

“The European market has understood and accepted this approach with very favorable results. The challenge for us here is to impart the same level of education and training so that customers can begin focusing on their bottom line. We have begun with this process but have come to realize the ‘regrooving’ concept may require a more dedicated educational process for the local market to accept.”

How do you plan to address this?

“First and foremost, by laying the right foundation in terms of competent and capable staff, product and training. This is particularly true when it comes to the regrooving process, which will require a combined Michelin-Dealer approach to set things in motion and ensure correct execution.

“Bear in mind that where Michelin Tyres SA is concerned, our aim is not to grow market share or volumes indiscriminately. We are focused on providing selected fleets with real long-term cost saving solutions.”

Can we expect the launch of new truck products in SA this year?

“As a matter of fact, you can. We will be releasing two new products for the truck tyre sector during the course of this year, the benefits of which we hope you will cover in your magazine’s future issues.”

Where Recamic is concerned, I was under the impression this premium tread was strictly reserved for use on virgin Michelin casings, yet this does not necessarily seem to be the case in South Africa?

“That is our ultimate aim, yes, and in Europe this is pretty much the case. Unfortunately, when it comes to the SA market we have to be pragmatic in that the number of Michelin casings currently in circulation are simply too few to justify this policy.

“Whilst we do not intend to deviate from our philosophy entirely, we do realize the current situation is not ideal and have to be flexible.”

Are you not concerned possible “competitors casings” failures might reflect negatively on the Recamic product?

“Michelin casings have the reputation – quite deservedly – of being the best in the world. Should an opposition casing fitted with Recamic tread fail for some reason, I truly believe a discerning customer would not be inclined to attribute the failure to the tread.”

Historically, Michelin has been praised and commended for its technically superior approach to the marketplace. Will intensive training remain a focus for Michelin Tyres SA, as well?

“As you correctly point out, as a group this has always been our trademark. As far as the domestic market is concerned, I do not believe we are at the level we need to be in terms of meeting the global standard. Currently, our technical people lack the necessary support to perform at their optimum level and one of my targets is to tackle this imbalance as a matter of priority.”

What are your thoughts on the price war?

“The so-called ‘price war’ is not unique to South Africa. The global tyre trade has been engaged in a cat-and-mouse game for decades. We cannot expect it to subside, not in the foreseeable future at any rate.

“We are under constant pressure to keep on providing a cost effective solution and innovate, as we try to target more customers who wish to drive on a superior truck tyre and may not be able to afford it right now.”

Gilles, it would certainly appear your hopes and aspirations for Michelin Tyres SA are many and varied. Does your current assignment carry a time limit?

“Thankfully not. Traditionally, foreign posts such as this one are between three to four years, but I’m hoping my superiors will forget all about me (laughs), thereby granting me the required time in which to meet my goals and objectives. I intend to make a real difference in this company but meaningful change and results are never achieved overnight.”

Would you comment on the current OTR global shortage? How is Michelin addressing this?

“The current shortage of OTR tyres has arisen due to the increase in mining activity caused by the incredible rise in mineral prices. All indicators point to the sustainability of these prices and even greater demand for OTR tyres.

“In order to provide as much relief as possible to the mining and construction industries, Michelin has adopted a two-prong strategy to minimize the demand supply gap.

“Firstly, all of the existing Michelin production facilities have been working to their maximum capacity and flexibility to deliver as much product, of the right specification, to our customers. In addition, we have announced details of the following measures that we are introducing to increase our production capacity:
• Construction of a new earthmover tyre facility in Brazil to manufacture smaller, 25- to 49-inch tires
• Extension of the facility for production of 57- to 63-inch mining tires in Lexington, S.C., in the U.S.
• Increased capacity in the Vitoria, Spain, facility

“Our second approach is based upon the philosophy that I mentioned earlier – tyre life optimization, not only to reduce tyre costs, but more importantly in this shortage environment, to reduce the quantity of tyres required. At each site we promote best practice approaches to tyre / site / machine maintenance procedures to enable machine operators to safely increase tyre life and so minimize the increase in their need.

“We expect the current demand – supply imbalance to last for at least the next two years.”

Speaking of new plants, will Michelin ever institute a factory in SA?

“International tyre makers are constantly looking for new opportunities and markets. Whether South Africa is on Michelin’s radar screen is not known, but there are always possibilities.”

What are your thoughts on the influx of cheap imports coming into SA?

“The growing number of imports entering the market is a real concern and has intensified the pressure on tyre manufacturers to keep on making a more superior product, if they are to effectively compete. Our immediate challenge as responsible tyre makers lies in educating our customers on the safety and retreadability of our products so they do not fall prey to cheap, inferior alternatives.”

We hear little of the BFGoodrich tyre (now a Michelin brand) in South Africa. Why is this?

“BFGoodrich is an excellent U.S. tyre brand that has made its mark in the Dakar rally due to the excellent performance of its 4×4 range of tyres.

“Unfortunately, tyres coming in from the U.S. are subject to a 30% import duty which challenges the competitiveness of the product. However, the tyres have a good reputation in the marketplace which often overcomes the price factor and they have proved to be very successful in South Africa. Suffice to say, BFGoodrich tyres are available on a small scale through selected SA dealers.”

We were all disappointed at Michelin’s withdrawal from F1.

“So were we. The decision was made by the late Edouard Michelin over differences between Michelin’s long-standing philosophies and the way F1 is currently managed. The rules stipulating a sole tyre supplier changed virtually without warning, something Edouard Michelin did not believe was beneficial for either the company or the tyre industry at large.”

What would you say are the biggest challenges you face in your current position?

“First, currency fluctuations, followed by the domination of the market by the four locally-based tyre makers.”