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Why Huayi Group insists on “breaking up” with Michelin

Shanghai Huayi (Group) Co., Ltd. (Huayi Group) repurchased equities of Double Coin (Group) Warrior Tire Co., Ltd. (Anhui Warrior) and completely separated with Michelin in 2017.

Reluctant cooperation

Actually, the cooperation in Anhui Warrior between Huayi Group and Michelin was failed for the second time.

The two sides used to set up Shanghai Warrior in 2001, but Huayi Group decided to quit in 2009 due to poor benefits.

Anhui Warrior was established in Nov. 2010, with registered capital of 1.67 billion yuan. At the beginning of its establishment, Double Coin Group held 100% stake in it.

Anhui Warrior cooperated with Huayi Group, Michelin (China) and Michelin Finance in Apr. and Sep. 2011 in succession to be its shareholders. The investment ratio of the four investors has been 40.8%, 19.2%, 10% and 30% from then on.

Michelin (China) and Michelin Finance invested 167 million yuan and 500 million yuan, respectively, in Anhui Warrior, and the investment was 667 million yuan in total.

However, when the two entities quit the joint-venture, the sales price of the equities were only 107 million yuan and 320 million yuan, respectively, totaling 427 million yuan.

Obviously, Michelin accepted the losses of 240 million yuan.

The situation reminds people of the experience of Shanghai Warrior.

Michelin Finance held a 70% in Shanghai Warrior, while Huayi Group held only a 28.49% stake in terms of factories.

Unfortunately, Shanghai Warrior never made profit during the eight years of its establishment, and Huayi Group was forced to retreat from the cooperation and to withdraw the brand licensing.

Useless controlling interest

An official with Huayi Group disclosed that the situations between Anhui Warrior and Shanghai Warrior are different. Michelin was the controlling party of Shanghai Warrior, while Huayi Group had little right to speak or management the joint-venture.

As a result, Shanghai Warrior once became the original product manufacturer of Michelin, and it produced Warrior, Michelin, and BFGoodrich tires for Michelin.

At first, Michelin and BFGoodrich targeted mid- and high-end market, while Warrior targeted at low-end market.

Later, Michelin changed its strategy and lowered prices of Michelin tires, which began to contend for Warrior tires’ market share.

Such strategy hurt Warrior tires and the two parties broke up.

In their second cooperation, although Huayi Group had right to speak in Anhui Warrior, it could not prevent Michelin from interfering the sales, and Huayi Group had to repurchase the equity.

Chinese tire producers have greater market share of all-steel tires, but foreign brands perform better in the semi-steel tire market.

Does the failure cooperation between Warrior and Michelin mean that it is impossible to exchange market for technology?

The designed capacity of Anhui Warrior’s semi-steel tires is 15 million tires/year, and the first phase project of 6 million tires/year had started production in 2012.

Huayi Group disclosed in the annual report for 2013 that the second phase project of 4 million tires/year had entered into the bidding invitation period, but no update has been released till now.