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The Big Picture: Kumho Wants to be Reliable, Long-Term Supplier

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Kyu Cho, 54, has been president of Kumho Tire USA since February 2001, having served previously in variety of global management positions with Kumho operations in Australia, England and Panama, as well as in South Korea. In fact, his international experience started at the beginning; his first job with Kumho Group, which he joined in 1973, was in its tire export division.

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Kyu sat down with us for an interview during last November’s ITE/SEMA Show, just weeks before Kumho Industrial’s deal to sell an 80% stake in its tire unit to a consortium lead by JP Morgan Chase and Carlyle Group fell apart. At press time, the parent company was still seeking a buyer.

Q: What is Kumho Tire USA’s philosophy in how it goes to market in the U.S., and how are you leveraging that philosophy?

A: What brought Kumho to the table in the U.S. was broadline offerings – family vehicles, light truck, metric tires ®€“ and that’s been the basis of our business here. The addition of our motorsports involvement allowed us to get more involved in high performance tires. Given the strength that we had in the marketplace with our broadline offerings, it was a natural fit to bring UHP products to our customers.

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We’re not a niche supplier, and our focus is not to be a niche player. UHP is an extremely important segment of the overall business Kumho is going to do in the U.S., but it will not be our only focus. Now, as trends change and as 75- and 70-series products disappear, we will gradually change our capacity to more high performance. We’re not going to niche ourselves and we’re not going to say we’re the high performance gurus in the U.S. There has been a lot of expansion in our performance lines, but there has also been a lot of expansion in other product lines that are not as sexy and glamorous. Those things go together to help make us a more reliable, long-term supplier to our customers and offer them everything that they need.

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Q: There is a lot of concern about the tire safety and testing standards NHTSA is expected to mandate under the TREAD Act. Based on the proposal already made public, where is Kumho relative to those standards?

A: We have been watching how the TREAD Act is going and how regulations are being formulated. We have been talking to our engineers at our technical center in Akron and to our manufacturing group regarding the TREAD Act. Certainly, we will follow whatever regulations are created. The new reporting systems and test standards will be a big cost burden on all tire manufacturers.

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We are a relatively conservative company in that we build our tires to really, really last. It has never been a prime objective to reduce weight and change our products to improve profits. We have always just done what we have done. According to our engineers, we are not going to have a big issue meeting the endurance tests outlined in NHTSA’s proposed regulations. There are some recommended changes they want to make to improve our products, but we’re pretty comfortable that we’re going to be able to meet even the most stringent testing procedures.

Q: Are you satisfied with the size and efforts of your dealer base in the U.S.?

A: We are extremely satisfied with our dealer base here. We talked last year about our goals. Our business in 2001 increased over 30% compared to 2000, and we expect another 30% increase this year, even with the economic difficulties we all have faced. In 2003, we expect a little more modest growth.

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We target independent tire dealers, and we have what we feel is the ‘best of the best’ in the industry as far as our tire dealer customers. They are the ones who created this growth for us. Now that we foresee some slower growth, primarily because of capacity constraints, we are not actively going out and trying to generate a lot of new distribution."

Q: Is Kumho looking to add mass merchant, price club or discounter distribution to its business?

A: Right now we have no plans to address the mass merchandisers. We can never say never because never is a long time. But our short- and long-term philosophy is to do business primarily with independent tire dealers.

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Q: Kumho is also active in standard passenger, light truck/SUV and medium truck tires. What has Kumho done to leverage its high performance position to build business in those other segments?

A: Again, UHP is a portion of our business. That segment is growing, and we as a company want to at least be one of the frontrunners in the UHP arena. We want to be involved in motorsports because that gives us technical knowledge for our high performance products. In motorsports we can test construction and compounds to see what the performance level is and we can evaluate that. We hired Rick Brennan last year because we wanted more technical market-related knowledge about what direction the market is going.

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When you talk about leveraging our technical competence, we are not going to be all things to all people, but we want to try to be as much as we can to our customers. We want them to acquire the products they need from one source and not have to pick and chose different product lines and different price points from different companies. We’re trying to give them what they are asking for, not just what we are producing. Our customers are not selling UHP exclusively. They want metric tires, broadline products, light truck/SUV tires and truck tires.

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Q: How long before we see a Kumho manufacturing facility in the U.S.?

A: At this point, any chance to have a manufacturing facility in the U.S. would probably involve taking over an existing plant. We considered the former Armstrong plant in Tennessee. We looked into it, but we decided against that facility. When an opportunity like that comes along, we will look into it. Offshore manufacturing causes a real problem with delivery. When we place an order in South Korea it takes a minimum of two months to have the merchandise here.

To provide good service to our customers, we need to have some facilities over here to serve our customers in a timely fashion. We try to position ourselves and do business with our customers as if we were a domestic supplier. Our goal is to reduce the turnaround time between when an order comes in and when the customer receives product. And we want to allow the customer to use our inventory as their inventory. We don’t stress direct container basis ordering. A bulk of our business is warehouse-type sales. We know our customers want better service, not better prices for large quantities or for products that require huge lead times. One of the things we’re doing to improve service is opening an additional warehouse in Chicago, which will be open in the first quarter of 2003 to service our customers in the Midwest. That is now our final location and it fills in our distribution network across the U.S.

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Q: Is there a possibility of an off-take agreement in North America?

A: We have considered off-take arrangements, but we don’t have anything that we are pursuing."

Q: From an OE perspective, how well has Kumho done in North America? What new OE fitments will we be seeing on this continent?

A: As you know, we are an OE supplier to the Korean car manufacturers, and we have OE business with Volkswagen in Europe. We are qualified to be a vendor to American car manufacturers, but with the capacity constraints we have, I don’t think we have a chance to get in and still be able to service our replacement customers. And price-wise, the OE business is very tough. Goodyear and Michelin want to increase their OE profitability.

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We may have a small quantity of OE business if capacity permits, but we don’t want to go into the OE business with the big boys because of our capacity issues. We are responding to all the car manufacturers and building relationships with them, but we need to take care of our independent tire dealer customers first. Heavier OE business could be important to us in the future, but it is not on our short-term list.

Q: Where do you feel Kumho Tire USA will be in five years, and where will your parent company be from a global standpoint?

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A: I don’t think there will be a big change. Right now we rank 10th in the global tire industry, and our share position is something like 2% of the global market. To increase our marketshare, we would need to increase our capacity, and that is a really big investment for the company. After having new investment in the future, we may have a different view. Over the last two years we have increased our marketshare in the U.S. Next year we may see some more increases. We think that in the U.S. steady growth is possible, but not big growth.

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In five years, I do want to enhance Kumho’s brand awareness in the U.S. through the product and the media and advertising, perhaps to the level of the Japanese brands. We want end-users to recognize the Kumho brand, but their perception of the Kumho brand is not there yet.

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