The Art of Public Relations Is In Full View As Michelin Tries to Right Its Wrong at Indianapolis. Bum Tires May End Up Costing the French Company $50 Million. But If It Does Things Right Its Brand Could End Up With a Perrier Outcome.

Philip Stone July 4, 2005

It really couldn’t be much more of a corporate public relations disaster than this: You tell 14 of the world’s premier Formula 1 racing teams that the tires you supply them cannot be guaranteed safe for America’s premier raceway – the Indiapolis 500 Motor Speedway. With just six teams starting the race seen on global television using your competitor’s tires there wasn’t much more that Michelin’s motorsport director could do than to cry his eyes out for 15 minutes. And the 120,000 fans that had paid an average $100 a ticket, plus television networks and sponsors, were not feeling too swell, either.

In the next 10 days that followed all racing hell broke out. The recriminations were everywhere. Business relationships were in tatters, television contracts in doubt, and racing fans claimed they were fleeced. There was talk that Formula 1 was dead in the US.

Formula 1 found the teams that did not race guilty of two charges of not being prepared, but, held off announcing any punishment until the season was over for fear those teams would revolt and pull out of future races. Interestingly, no charges were brought against Michelin itself since its business relationship was with the individual racing teams and not with Formula 1 directly.

And then, finally, Michelin stepped to the plate. It offered to refund all the tickets and to buy 20,000 tickets for the 2006 race. Total cost of all that is around $12 million. But Max Mosley, president of the Federation Internationale de l’Automobile (FIA) wants Michelin to go further and agree to cover all the costs related to repairing the relationship with Indianapolis and ensuring a 2006 race. 

“It is not just a question of compensation, but we believe everybody should get to the race for free next year,” Mosley said. He thinks if Michelin gets itself and the F1 out of the mess for less than $50 million it will have done well.

The folks in Indianapolis are already playing hardball. The Michelin teams made an offer over the weekend to race for free in Indianapolis at the end of the season for a no-point race, but the offer was rejected out-of-hand by the Indianapolis Motor Speedway management.

“Priority one is resolving everything from this year’s race,” Speedway spokesman Ron Green told the Indianapolis Star, explaining staff were fully occupied making refunds for the debacle. “Priority two is working on an event for 2006.” And one can bet the Speedway will hold Formula 1 financial feet to the fire, and F1 will expect Michelin to shoulder the bill.

And yet out of such calamity can come great good if it is handled properly, and although Michelin got off to a late start it has started down the right road. And it need look no further than to another French product that had a major problem in the US and learn from that experience how to rise from the ashes.

Back in 1990 Perrier was the most popular, trendy bottled water in the US. Its little green bottles were found everywhere. It was positively chic to be seen drinking Perrier. And then disaster struck.  Tests showed that because of factory error the benzene level in some tested bottles was too high. What to do?

Once the problem was out of the bottle, so to speak, Perrier pulled and destroyed 160 million bottles and that alone cost, then, some $35 million, and until it could replace the bottles another $40 million was lost in sales.

What caused Perrier an additional problem in the US was that everyone had thought the water was “natural” – that nothing was done to it from coming out of the spring and going into the bottle and when customers learned that was not exactly the case, and that in treating the water the benzene got too high in just a few bottles, Perrier had to deal also with its definition of “natural.”

But a very clever expensive humorous advertising campaign relaunched the product and today guess what imported bottled (actually now plastic) water is America’s favorite?

Companies have become very sophisticated in treating disasters and they have learned that once the problem is known they must show themselves as good corporate citizens and do everything they can to clean up the mess they have caused. And corporations have found that is usually money well spent to gain the public’s confidence.

In a recent tragedy in the US, BP had to go through the same exercise. On March 23 BP a fire at its Texas City refinery cost 15 lives and more than 170 were injured. BP conducted a swift internal investigation and published it on its web site with a news release headlined, “BP Products North America Accepts Responsibility for Texas City Explosion”

The report said its people were responsible, it explained what happened, and how it happened, it did not try and lay the blame on others, and it quickly began the compensation process. It said disciplinary procedures have started and it has appointed a new site manager who will concentrate fully on its safe operation.

BP also bought advertising to explain the steps it was taking to ensure such an accident would not reoccur, and some of those reforms will be very expensive to implement. None of that stopped the media from continuing to criticize BP but it took away much of the sting.

For Michelin, the trick now is that since it is in the public’s eye, it needs to transform itself from the villain into the good guy. The refunds are a good first step. Coming 1-2 in the French Grand Prix this weekend should boost the product image.

And whether it is a $12 million spend or a $50 million spend, if Michelin handles its campaign smartly it could turn out to be the smartest money it has ever spent in the US.