In a sign that carmakers' price squeeze on suppliers may be reaching its limit, Michelin said it will no longer supply tires to General Motors' European cars.
"GM's purchasing policy is incompatible with our strategy of targeted growth," said a Michelin spokesman.
Michelin wants to focus on sales of high-quality, high-margin tires. The French company said it decided not to renew its contract with GM Europe that expires at the end of July.
But the spokesman said Michelin's contracts with GM in North America, which run until 2007, are unaffected.
In Europe, GM owns the Opel/Vauxhall and Saab brands. GM also makes tire purchases on behalf of alliance partner Fiat.
Analysts praised Michelin's decision, which comes at a time when many suppliers have been brought to the brink of bankruptcy by price pressure from carmakers.
"GM is known for being the most difficult partner in the industry," said Philip Wylie, automotive director at consultant PricewaterhouseCoopers Corporate Finance. "It's not surprising that someone like Michelin is not caving in."
GM's head of purchasing, Bo Andersson, created controversy late last year by sending a strongly worded letter to several hundred suppliers worldwide.
In the letter, which was made available to Automotive News Europe by suppliers, Andersson criticized the sale of parts originally developed with GM to the aftersales market.
A GM spokesman who declined to be named said Michelin "did not match the level of competitiveness" of other tiremakers. The bidding for the new European tire contract took place in the last couple of months. The tender was for Opel/Vauxhall, Saab and Fiat, but the spokesman did not specify which cars were involved.
Wylie said GM and other carmakers might be going too far in their efforts to squeeze component prices.
"Vehicle manufacturers have to be careful," he said. "We are seeing major collapses among suppliers."
Only last week, two large German suppliers went into receivership. One was Peguform, a plastic injection molding company owned by U.S. supplier Venture Industries. The other was German stamping firm Sachsenring.
Michelin declined to say how much revenue it would lose from the non-renewal of the GM contract. It said its 2002 revenue forecast was unchanged as it had anticipated the loss of the GM Europe business. Michelin added that GM Europe accounted for less than 5 percent of the number of tires it sells worldwide, a figure it does not make public.
Michelin sales reached $15 billion in 2001. Operating profit reached $947 million, giving a 6.6 percent profit margin.
Last year Michelin decided not to supply tires for the Peugeot 307 in protest against price pressures from PSA/Peugeot-Citroen's purchasing department.