Pirelli to Invest US$100 million in Argentina Plant

Pirelli has announced plans to consolidate its already strong position in South America by expanding production at its Merlo, Buenos Aires, Argentina factory to 6 million units a year by 2013 with investment of US$100 million. The announcement prompted news agency Reuters to add Pirelli to its list of Italian “stocks to watch” on 21 October, owing to the fact that Argentina is “South America's number two economy.” By the end of 2010, Pirelli’s Argentinean sales are expected to grow by 55 per cent to $365 million and the target for 2013 is $500 million. This compares with 235 million dollars in 2009. Some news reports suggested the move means the firm "will move part of its production to Argentina, from Brazil and Europe." Company representatives did not comment on what, if any, affect the expansion plans would have on its existing European production capacity.

Production capacity to grow 20 per cent to 6 million units a year, with focus on SUV/light truck segments

Pirelli has operated since at the Merlo site since 1951 and currently produces over 5 million units annually for its car, SUV and light truck ranges. At the moment this accounts for 10 per cent of the group’s total production in Latin America and 20 per cent of car tyre production in the area. The increase in production capacity will specifically result in the doubling of production in the high value SUV and light truck segments which typify the Argentine auto market. 50 per cent of future production will be absorbed by “increasing internal market demand.” The rest will support demand from export markets, principally Brazil and the other South American markets and the USA. The factory counts the major car makers Volkswagen, GM, Fiat, Ford, Peugeot and Iveco as clients. Toyota is expected to join the list soon.

The $100 million investment is scheduled to be phased in entirely by 2013, but about $20 million will be spent this year. Writing in a statement announcing details of the investment, company representatives explained that the first phase of investment will go towards technological and quality improvements.

Green focus

In 2011 the company will install a new process for the production of compounds which will bring the production of low environmental impact tyres to half of total output, in line with Pirelli’s strategy of increasing commitment to the development and production of ‘green performance’ products,

The Merlo site’s production area currently covers 48,000 square metres which, by the end of the period, will grow to 60,000 square metres. Overall, the investment plan will generate 300 new jobs in due course, with a total of 1,200 employees in due course compared with around 1,000 in 2010 and 900 in 2009.

After the slowdown in 2009, the Argentine car market is reportedly experiencing “an increasing dynamism linked to the performance of the internal market” where some leading car makers – Ford, Renault, Volkswagen, Toyota, Peugeot, Mercedes and Honda among them – are launching new projects, as well as demand from nearby markets like Brazil which absorbs a large part of local production. According to data released by the national association of car producers (Adefa), moto vehicle production in the first nine months of 2010 exceeded 500,000 units, with a growth of 50 per cent compared with the same period in 2009. At year’s end production could surpass 650,000 units (513,000 in 2009), according to sector estimates. Car production today represents more than a third of Argentina’s industrial growth and 34 per cent of manufacturing sector exports.

Of the 20 production sites that make up Pirelli’s “industrial universe,” seven facilities are located in South America (one in Argentina, five in Brazil, one in Venezuela) and generate 36 per cent of Pirelli Tyre’s total sales. This output cuts across all segments including car, industrial vehicles, motorcycles, agricultural and worksite machinery.

Pirelli’s increased exposure in the emerging South American markets appears to have had a positive

impact on the company’s global market share. Pirelli is now reportedly the only top five tyre manufacturer

to have grown its share in recent times. Source: Pirelli

100 years of Pirelli in Argentina

Pirelli’s Argentina development plan was illustrated at a press conference in Merlo on 20 October 2010. Argentinian president Cristina Fernández de Kirchner, the governor of Buenos Aires Province Daniel Scioli, industry minister Débora Giorgi, foreign affairs minister Héctor Timerman, labour minister, Carlos Tomada, Italian ambassador to Argentina Guido Walter La Tella, the mayor of Merlo, Raúl Othacehé, the chairman and CEO of Pirelli, Marco Tronchetti Provera, the CEO of Pirelli Tyre, Francesco Gori, the CEO of Pirelli Pneus America Latina, Guillermo Kelly, and the Chairman of Pirelli Neumáticos Argentina, Franco Livini were all in attendance.

Pirelli’s activities in Argentina began 100 years ago and Pirelli Argentina was born in 1910 when the Group, then involved in the sale of rubber goods made in Milan, participated in the Buenos Aires Expo. At the end of 1917 “Pirelli Platense” began operations. With 24 workers, it was the Pirelli group’s first company in the Americas. In 1921, it began producing cables in the Donato Alvarez plant in Buenos Aires.

A leap in scale occurred in 1929. Pirelli had already bought land on the outskirts of the capital to build an electric cable factory: the “La Rosa” plant. In the same year a small rubber factory was acquired and incorporated into the same plant. The “La Rosa” plant was further extended with the construction of a new factory and the broadening of activities to include shoes made of rubber and cloth.

Having become Industrias Pirelli Saic in 1948, Pirelli Argentina acquired a factory in Bella Vista, outside Buenos Aires, in 1956 to house all its rubber processing, both for the cable sector and diversified products. In 1968, with the acquisition of 100 per cent of the Coplan company, of which it had held 50 per cent since 1951, Pirelli began the direct in-country production of tyres at Merlo, where the Group’s Argentine plant, after years of expansion and job creation, is still located.

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