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5 Questions With – Rick Brennan

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We caught up with Rick Brennan, Kumho Tire USA’s vice president of marketing, during the company’s recent dealer meeting in Punta Cana, Dominican Republic.

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Q: This morning you were talking about opportunities outside the traditional tire dealer channel. What specifically are you looking to do distribution wise?

A: We don’t have any plans to jump outside the dealer channel. At this point in time we don’t have a plan to jump into Costco or Sam’s or something like that. But we do need to expand our reach. First choice would be to build through the independent dealer channel. We are looking at all of the opportunities and possibilities we can possibly come up with to expand that. Hence the discussion we had this morning about sizes, and in some of those we have pretty good coverage. It’s just that we’re not getting our fair share. So if we can get some of these dealers to realize, “Oh I need to add a size or change a supplier to meet my market needs,” there is an opportunity for us.

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We also have to look at what’s happening in the marketplace. For example, the car dealer channel or things of that nature. It doesn’t mean we are going direct to the car dealer channel; we would go to dealers to cover that channel. But we need to look at all possibilities as far as distribution is concerned. Tires are distribution sensitive, and people buy from the place they walk into. So you need to be in as many places as you can. If we can meet our short-term goals by staying within the tire dealer channel – outside of the Sears business we have – then that’s great. We have no business climate that says we’re going to expand past that. Now, that doesn’t mean that absolutely we won’t in the future, but right now we have no plans to go to a Costco or Sam’s and sell them direct. Our first order of business is the dealer channel.

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Q: 2008 was a universally bad year. Have you been able to analyze 2008, taking the impact of the financial situation out, to see where you would have been in a 2006 or 2007 market?

A: Wow, I’m not going to say that’s not doable, I’m going to say that I don’t have the mental capacity to figure that out. You heard everyone here this morning – our fill rate for the first half of last year sucked. If we had tires before June in the quantities that dealers ordered, even though the downturn in the last four months of the year was pretty severe, we would have blown away our numbers. If we had the tires and the market was the same as 2006 or 2007, we would have gone significantly above our plans. Even with the short supply through June we were kind of okay. We weren’t hitting the exact target, but we were as far off as the last four months.

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Q: Kumho has had allocation issues in the past that has impacted sales plans and results. You could have sold more light truck tires, for instance, if you could have gotten more. Taking the Georgia plant out of the equation (work on which has been suspended for the year), are you going to be able to get more tires from South Korea or is Kumho tweaking things globally because of where business opportunities are in other markets vs. North America?

A: Keep in mind that the financial impact is global in scope. We have the ability to get the tires we want. The short supply issue last June had us changing stuff around to begin with. For instance, the original plan wasn’t to get KR21s from the new Vietnam plant at the beginning of the year, but we are getting them from Vietnam now. So we had to make some adjustments that put us in a much better position. Our light truck number was lower than expectations because the startup in the big supply from Vietnam didn’t happen until later in the year than we expected. It took a little longer to get it, so instead of getting tires in May they came in September. By that time, the downturn had happened in light truck and it was real tough to convince a dealer to make a switch when he was all panicky about what was happening to the light truck market. We had a tough time with light truck because the tires didn’t come when we thought. We will get the light truck tires we need in 2009, and we will get all of the KR21s we need.

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Q: From a trend standpoint you were talking about the LT/SUV market and made the remark that it could well be gone – period. Is that how you see that trending in the traditional LT/SUV market?

A: The traditional LT/SUV market right now is flat, and it will come back. When you look at that segment you kind of have to divide it into two because the RMA numbers considers only LT-metric and flotation. That segment has dropped a lot and it’s going to take a number of years for that to come back. P-metric light truck dropped a little bit, so it will come back a little quicker, but it’s not going to go back to the same growth curve it was on. It’s going to flatten out. It’s going to get back to where it was but it’s not going to grow like before – like 13% a year. We’re going to have growth of about 3%. It’s going to be a lot more like the passenger car market. The LT-metric market for F-350s and F-250s and all that stuff, I think businesses and small business drivers are looking at alternatives to dually pickups. A lot of guys drive them as their daily driver. Getting eight or 10 miles to the gallon just doesn’t work for them anymore.

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Q: The performance market we’ve seen the last five years and the progressively larger wheels and the accessorizing, is that segment a dead issue?

A: It’s not a dead issue, for example, if it’s a size that the OEMs have picked up – like 275/55R20. That grew last year. But if you take 265/35R22 or 305/40R22, which are the bling sizes for that same vehicle, then the segment has dropped like a rock. So I’ll say the ultimate bling 22-inch and larger, if the guy has an alternative in the garage he’s going to put the 18- or 20-inch back on. It’s not going away completely. We’re still going to sell some of them.

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Q: On a percentage basis, how much of it has gone away?

A: If gas prices do what everyone thinks they will, at least half, easy. 50% or more.

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