Bridgestone sees $350 mn special loss

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

Linking the accidents with hot weather, a higher speed limit on US Highways and consumers not maintaining the tyres properly, Bridgestone vice-president Tadakazu Harada said he wished the company had been able to prevent the accidents.

"With the benefit of hindsight, it would have been better if we had made consumers more aware of keeping their tyres properly inflated," he told a news conference. He said Bridgestone had found no manufacturing flaw in the tyres and that many of the 193 accidents reported to the NHTSA involved tyres damaged after they had left the factory.

Investors fretting about consumers deserting the Firestone brand and costs arising from a potential ballooning of lawsuits, dumped shares in Bridgestone, sending them down 11 per cent or 226 yen to end at 1,849, its lowest point since early September 1996.

The stock has slid some 24 per cent this week, initially sparked by US Retailer Sears, Roebuck and Co’s saying it had stopped selling the tyres under review.

Harada said the $350 million extraordinary loss covered only the cost of the recall and not potential lawsuits or loss of revenue, adding that the company did expect some impact on sales.

"We are prepared for a considerable impact in the United States although we do want to minimise that," he said. He said 50 related lawsuits had been taken out against thecompany.

On the plus side for Bridgestone, Ford Motor Co, which had at one stage said it might consider discontinuing some Firestone brand tyres, has so far made no move in that direction. The automaker said on Wednesday that Firestone wouldcontinue to be a "valued supplier".

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

Bridgestone, which bought Firestone in 1988, also cut itsgroup net profit forecast for the year ending December 31 to 67 billion yen ($620.7 million) from an earlier estimate of 90 billion yen. That compares with 88.7 billion yen last year.

Managing director Hiroshi Kanai said the Firestone division could fall into the red this year, with current recall 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 tyre manufacturer’s profits are made in the aftermarket.

"It’s inevitable that there will be some downturn in sharefor the company in the U.S. Tyre replacement market. With treads coming off tyres, some consumers are bound to turn away," said Tsunemi Tachibana, analyst at Nikko Salomon Smith Barney who kept a neutral rating on the stock.

Credit rating agency Standard & Poor’s Corp said it may cut the rating of Bridgestone and its Firestone unit, while Societe General Securities lowered its rating "underperform" from "hold" and cut the stock’s target price to 1,900 from 2,500.

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