Tire Recall Will Cost Bridgestone $350 Million

T O K Y O, Aug. 10, 2000 -- With its shares having fallen to levels not seen since 1996, the Bridgestone said today it would post a $350 million special loss this year after its U.S. unit, Firestone, announced a recall of 6.5 million tires.

The recall comes as the U.S. National Highway TrafficSafety Administration (NHTSA) investigates three brands ofFirestone tires that may have led to dozens of fatal crashes.

At least 46 deaths have been recorded in crashes where thetires blew out or the tread peeled away. The incidents involveone size of the company’s ATX, ATX II and Wilderness tires.

20/20 HindsightLinking the accidents with hot weather, a higher speedlimit on U.S. highways and consumers not maintaining the tiresproperly, Bridgestone vice president Tadakazu Harada said hewished the company had been able to prevent the accidents.

“With the benefit of hindsight, it would have been betterif we had made consumers more aware of keeping their tiresproperly inflated,” he told a news conference.

He said Bridgestone had found no manufacturing flaw in thetires and that many of the 193 accidents reported to the NHTSAinvolved tires damaged after they had left the factory.

Jumping off the StockInvestors fretting about consumers deserting the Firestonebrand and costs rising from a potential ballooning oflawsuits, dumped shares of Bridgestone, sending them down 11percent to its lowest point since early September 1996.

The stock has slid some 24 percent this week, initiallysparked by U.S. retailer Sears saying it had stopped selling the tires under review.

Harada said the $350 million extraordinary loss coveredonly the cost of the recall and not potential lawsuits or lossof revenue, adding that the company did expect some impact onsales.

“We are prepared for a considerable impact in the UnitedStates although we do want to minimize that,” he said.

He said 50 related lawsuits had been taken out against thecompany.

Ford Stands by FirestoneOn the plus side for Bridgestone, Ford Motor, which hadat one stage said it might consider discontinuing someFirestone brand tires, has so far made no move in thatdirection.

The automaker said on Wednesday that Firestone wouldcontinue to be a “valued supplier.”

Around three quarters to 80 percent of the accidentsreported to the NHTSA have involved Ford’s Explorer — the top-selling sports utility vehicle in the United States. Harada said that around 70 percent of the tires involved in the reported accidents were fitted at the time of manufacture while 30 percent were replacement tires.He declined to speculate on whether Ford had also contributed to the problem.

Long term ImplicationsBridgestone, which bought Firestone in 1988, also cut itsgroup net profit forecast for the year ending December 31 to$620.7 million from an earlier estimate.

Managing director Hiroshi Kanai said the Firestonedivision could fall into the red this year, with currentrecall costs putting the loss at $10 million to $20 million,although he said the loss could be even greater.

But analysts were most worried about the long-term impacton consumer sentiment because most of the tire manufacturer’sprofits are made in the aftermarket.

“It’s inevitable that there will be some downturn in sharefor the company in the U.S. tire replacement market. Withtreads coming off tires, some consumers are bound to turnaway,” said Tsunemi Tachibana, analyst at Nikko Salomon SmithBarney who kept a neutral rating on the stock.

Further DowngradesCredit rating agency Standard & Poor’s said it maycut the rating of Bridgestone and its Firestone unit, whileSociete General Securities lowered its rating “underperform”from “hold.”

That downgrade follows two others this week — a cut to“reduce” from “hold” by Dresder Kleinwort Benson and a cut toto “3” or neutral from “2” or outperform by Nomura Securitiesafter the announcement by Sears.

Bridgestone’s troubles have been a boon to stocks of othertire makers, including France’s Michelin and Goodyear Tire and Rubber.