The excitement of collaboration that once seemed promising has now turned into a crisis, leading to the potential breakup of the partnership. A few days ago, reporters learned that Shanghai Michelin Warrior Tire Co., after over six years of tense cooperation, may be on the verge of dissolving this year.
According to insiders, in recent years, Michelin has been reducing prices for certain products to prevent losing market share following the loss of its brand identity. In 2003, Michelin restructured its Shenyang plant into a wholly-owned subsidiary and shifted its focus there. Facing a seven-year struggle to maintain its brand presence, Michelin had already begun planning its exit strategy.
**Michelin’s Price Cuts Hurt**
Looking at Michelin’s global strategy, the company uses different brands and pricing models to target various consumer segments. Wherever it expands, it typically introduces Michelin, Bailuchi, and a well-known local brand to create a diversified product lineup.
In China, Michelin's mid- to low-end tire market relied heavily on a joint venture with Shanghai Tyre & Rubber Company, launched in 2001. The Michelin brand was positioned as high-end, while the back-to-back brand targeted the lower end. This multi-brand approach aimed to expand market share through complementarity.
According to industry sources, although Michelin invested less in building the back-to-back brand compared to the main Michelin line, it still played a crucial role in its Chinese strategy.
On January 19, a manager at a Michelin franchise store in Beijing Xijiao Auto Parts City told reporters that since last year, Michelin tire prices have dropped by more than 30%. After a December price cut, the price fell from over 450 yuan to around 330 yuan. Meanwhile, the back-to-back brand saw little or no price cuts, even some increases, narrowing the price gap significantly. He told reporters, “This shows that Michelin is targeting the low-end market to compensate for the losses from the brand’s decline.â€
In another tire retail store, the reporter found that for a Jetta model (185/60R14), Michelin tires were priced at 328 yuan, while the back-to-back brand was just 300 yuan—less than 30 yuan difference.
“The price drop by Michelin has had a major impact on the entire tire industry,†said one long-time tire dealer. “I believe the damage to the back-to-back brand is even greater.â€
Some analysts suggest that these price cuts will make future cooperation between the two sides even more difficult, especially given the previous dissatisfaction with the partnership.
**Loss-Making Joint Venture**
In April 2001, Michelin partnered with Shanghai Tire & Rubber (Group) Co., Ltd. to establish Shanghai Michelin Warrior Tire Co., Ltd. (SMW), with a total investment of $200 million and Michelin holding a 70% stake. SMW initially produced back-to-back branded tires and began manufacturing Michelin-branded tires by the end of 2002.
That same year, Michelin moved its China headquarters from Beijing to Shanghai and set up an R&D center there. However, from the start, there were disputes over management style. Michelin aimed to integrate its corporate culture into the new company, but internal communication and cultural differences created ongoing challenges.
Despite initial optimism, the joint venture has struggled financially since its inception in 2001. Public reports show that SMW reported losses of 126 million yuan in 2001, 135 million yuan in 2002, 148 million yuan in 2003, 125 million yuan in 2004, 54.995 million yuan in 2005, and 75.356 million yuan in 2006.
These continuous losses deepened disagreements between the Chinese and foreign partners, making the relationship increasingly strained. The differences in management and personnel arrangements have made cooperation difficult.
Although the joint venture has suffered huge losses, Michelin’s business in China has grown rapidly, creating a stark contrast with the performance of the joint venture.
**Double Money to Recover the Brand**
The popularity of tires in the car tire market, combined with the joint venture’s ongoing losses, has led the Shuangqin Tire Company (the owner of the back-to-back brand) to initiate efforts to reclaim the brand. According to insiders, the 7-year contract is set to expire in April, and the company plans to reclaim the brand by paying double.
When contacted, Shuangqin Tire did not confirm or deny the report. A representative from the company’s Securities Affairs Office stated, “We cannot disclose specific details. Any decision regarding the brand should be based on official announcements.â€
Michelin’s senior media officer in China, Shi Jie, denied the claim, saying, “There is no such thing.â€
According to local media sources familiar with the situation, the idea of reclaiming the back-to-back brand has been under discussion for a long time, and negotiations are currently underway.
The back-to-back brand, which originated in 1947, is a well-known domestic brand. When asked what Shuangqin Tire gained from the joint venture after more than six years, an insider remained silent. Over the past six to seven years, the brand failed to regain its former glory, and many people in China hope for its return.
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