There is no doubt that Hankook Tire Co. sees itself as a “global top-tier” tiremaker, particularly after landing a handful of major OE fitments in the last few months – including a spot on the 2014 Mercedes-Benz S-Class.
But the company and its leadership acknowledge that it’s not quite ready to join the ranks of Tier 1 tire companies, an exclusive club that most observers see as having but four members.
The growth exhibited and the moves made over the past decade clearly indicate that achievement is well within reach. In fact, if the last few months are a gauge, Hankook will be there sooner rather than later.
In early September, Hankook hosted a major press event near its Seoul, South Korea, headquarters, with more than 100 local media, news bureau journalists and the U.S. tire media in attendance. The primary purpose was to unveil the company latest OE victories, but the underlying theme of the hour-long presentation was the company’s arrival as a true global tire company.
The S-Class fitment – the W-rated UHP Ventus Prime2 in size 245/55R17 – was effective in June and was the culmination of more than three years of toil, officials said. Daimler AG pressed for “outstanding braking performance and excellent handling,” as well as optimized comfort, road noise and “significantly reduced rolling resistance.” That required tons of development and testing time, Hankook said.
The 2014 Mercedes-Benz E-Class will also sport Hankook tires, a deal that was effective in September. The eco-friendly W-rated Ventus S1 Evo2 in size 225/50R17 will be the primary rubber on the vehicle.
As of August, Hankook scored OE fitment on the BMW 5-Series – 520i, 528i, 530i, 535i and 520d – in Europe with the non-run-flat Ventus S1 Evo2 in size 225/55R17W. The 5-Series is the fourth BMW line to take on Hankook, following the Mini, 1-Series and 3-Series.
In North America, Hankook earned major OE spots on high volume Toyota, Honda and Nissan models.
As of July, Hankook’s all-season Optimo H426 earned standard fitment on the 2014 Toyota Corolla (size 195/65R15S). In August, Hankook took an OE fitment on the 2014 Nissan Altima, with the T-rated Optimo H426 in size P215/60R16. And at the beginning of the year, Hankook signed on as standard OE supplier for the 2013 Honda Civic, which comes with H-rated Optimo H426’s in size P205/55R16.
Given past fill-rate issues, North American dealers can be forgiven for wondering if these high volume OE contracts will create supply problems, but Hankook Tire vice chairman and CEO Seung Hwa Suh assures that won’t be a worry. The tiremaker, he explained, is committed to expanding capacity by at least 6% each year.
Right now, Hankook has room for 92 million units per year, and will add another 5-6 million units across the board in 2014. In mid-September, Hankook officially opened its seventh plant, a passenger and light truck/SUV plant in West Java, Indonesia. Of that plant’s six million tire capacity, 70% will be exported to North America, the Middle East and the ASEAN region, Hankook said.
The tiremaker’s current capacity level also doesn’t include the long-awaited U.S. plant. (On Oct. 14, Hankook officially announced that the U.S. passenger and light truck/SUV tire plant will be located inClarksville, Tenn.)
Organic capacity growth coupled with the new U.S. plant will give Hankook “adequate capacity and good fill rates” in North America, he said.
Backing that up is a global R&D effort, with technical centers in South Korea, Japan, China, Germany and Akron. The main technical center in South Korea is located near the company’s massive plant in Daejeon, considered the world’s largest tires-only production facility with annual output reaching 22.5 million tires.
Just two weeks after the OE press event, Hankook announced plans to build a new engineering center in Sangju City in Gyeongsang Province. The company has committed KRW 240 million (about $225,000) “until 2020 for the construction of a top-tier proving ground and a tire R&D facility.”
The 132-hectare facility will be the largest in South Korea, the company claimed, and its “state-of-the-art test facilities” will allow Hankook to road test everything from high performance radials to medium truck tires.
Importance of OEs
“Why is today such an important day for us?” Suh asked rhetorically in a separate interview following the press event. “Not many years ago we were excited to announce our first major OE win, supplying temporary spares to Ford back in 1997. Today we are announcing that we are OE on Mercedes-Benz’s top vehicles, on BMW and three high volume Nissan, Honda and Toyota models. This is a tremendous achievement, a historic day for Hankook.”
During his press conference remarks, Suh said it was “significant” for Hankook to be providing OE tires to premium marques like Mercedes-Benz and BMW. “It shows that our company’s quality has been recognized worldwide,” and that was a starting point for Hankook to be recognized by consumers “as a strong quality tiremaker.”
Chief marketing officer Hyun Bum Cho said that even as Hankook continues to refer to itself as an “emerging brand,” the implication of these new OE fitments is that “our technology, our capabilities and our quality has been officially recognized, and that makes us a premium tire brand to our customers.”
The premium OE fitments in particular “will have a positive impact on our replacement market efforts” beyond direct one-for-one replacement on those vehicles, Cho said.
Becoming a “global top-tier” tiremaker, he stated, was the result of a strategic commitment that required Hankook to conquer having a global supply network, global R&D support, a global distribution network, strong brand communications, and growing presence in key markets like North America and China.
The Chinese market, Cho said, is very important to Hankook, where the tiremaker holds the “number one share” in passenger radials. “We are very committed to developing China market,” he said. “Our strategy is not just geared to wholesalers. We focus very much on quality in China. The consumer priority there is quality.”
Aiming Arrows
Hankook (the name translates directly to “Korea” in Korean) celebrates its 72nd anniversary this year, and posted global sales of $6.6 billion last year, according to Tire Review estimates. Its Hankook Tire America Corp. unit turned 32 this year, and contributed $1.2 billion to the corporate total.
During the press conference, Suh was asked about Hankook’s financial performance. “We challenge ourselves every year. We can play it safe and lower our objective standards according to the tough market conditions, but as the saying goes, ‘an arrow shot aiming for the sun reaches farther than that for the treetop.’
“In other words, amidst the weak global economy both last year and currently, I believe we were able to pull off continuous achievements due to our relentless efforts and goals set high,” he said firmly.
Those comments say a lot about Suh – a 40-year Hankook veteran – and his management style. Sitting still is never an option, regardless of the surrounding conditions. Hankook’s mission is to provide customers with value and pleasure, and Suh feels that not only do consumers understand quality, they are happy to pay for it.
Still, future growth is not all about sales results and pricing practices. “By 2020 we want to be seen as a leading global tiremaker,” he said. “But that requires us to be more socially responsible.”
“Social responsibility as a company in our country means to make jobs, pay our fair share of taxes to the government to help make people’s lives better, make the company stronger so that we can maintain employment levels, and produce and sell a safe quality product to the public,” Suh said plainly.
Two product areas Hankook must also shore up include a strong second brand and improvements to its truck tire program globally. Being able to add a secondary brand means pushing the “Hankook brand higher to get more premium price, which will give us the room to introduce another brand successfully and show growth.”
The truck tire business is a bit more vexing, and will take more study, more effort and more product.
The Hankook name has often surfaced in talk about Formula One tire contracts, and Suh recognizes it as a good opportunity to improve its brand awareness.
Still, he is also well aware of the high cost of participation and says the company needs to weigh that against the potential benefit.
“It’s a dream for us,” he said of the global series. “We can provide tires right now, but we have to enhance characteristics to make them the best. But is it is part of our long-term strategy.”
Future growth could also come in the form of mergers or acquisitions, but Suh said there is nothing in the offing. “If there is a good opportunity we are interested, but we prefer the greenfield approach.”
All approaches will certainly be considered as Hankook moves from being a “global top tier” tire company to fully joining the ranks as a Tier 1 player. And there is no doubt Suh and his team all have their arrows pointed right at the sun.
