Hankook president addresses supply, growth concerns
Strong growth and demand for Hankook products continue to place pressure on the company to meet its distributors' fill-rate needs. Two plants are currently under construction to ease supply constraints.
Soo Il Lee, president of Hankook Tire America Corporation, who says he is not comfortable speaking English in front of large groups, eloquently summed up the 2011 tire industry when he said, "I believe it was kind of similar to riding a roller coaster last year; up one time and down the next."
Lee told Hankook dealers at its annual dealer meeting in Punta Canta, Dominican Republic, that 2011 saw record sales for Hankook Tire America Corporation -- $1.2 billion in U.S. and Canada with $1 billion in the U.S. alone -- as well as the parent company, Hankook Tire Company Ltd. totalling sales of nearly $5.9 billion globally.
Despite this success, Lee said "the cost of raw materials skyrocketed throughout 2011 although currently it has stabilized a little bit. Tire makers, consequently, could not help but increase their prices, affecting consumer demand and subsequently sales volume."
Lee addressed supply and fill-rate issues directly. "I admit that last year our fill-rate was less than I would have liked, and I would like to apologize for that. In 2012, we will do everything we can; increase our production capacity and allocation to this market, make investments in bigger and better distribution centers, and operate our new back-order system."
Lee continued to express his desire to have "our own factory located in the Americas" which would be an ultimate effort to improve Hankook's service to its customers. No time frame for the plant was mentioned, however.[PAGEBREAK]
Currently, Hankook has two new plants under construction, with a total investment for both of about $1.3 billion. The Indonesian plant will begin shipping tires in late 2012. Once fully running in 2014, this plant will produce 5 million tires per year. Hankook has said that 50 percent of the production will be targeted for North America.
The other plant started construction in the first quarter of 2011 and should be completed by 2015. The plant, located in China, will produce 11.5 million passenger, truck and bus tires per year when fully operational. All the tires are to be used for Chinese consumption. The company believes that this capacity will free up other plants to redirect more product to North America.
Hankook will continue to invest in its marketing communications to build its brand. The company is expanding its major league baseball home plate signage program to 26 teams, including the New York Yankees, for 2012. "These aggressive and smart marketing investments will not only enhance our brand positioning but also help your business with Hankook to be more successful," Lee told dealers.
The company also had on display a new kiosk that featured an Apple I-pad that a consumer could use to learn more about Hankook products.
Lee also predicted that 2012 could be difficult. "this year, the uncertainty of the U.S. and global economic environment still cast a dark shadow over our business.
If the remedies to the European financial crisis do not work well, it can spread negatively to the global economy including the U.S. The turbulent situation in the Middle East can skyrocket the price of oil again, impacting consumer driving habits and increasing cost.
It could make the already difficult global economy worse and spread to the overall tire industry," he warned.[PAGEBREAK]
Lee then said, "but all of these things are nothing new and something we can endure by doing business in smart and effective ways."
Lee finished his remarks at the meeting by emphasizing Hankook's core business culture, "relationship and continuity."
"As you know, the tire business is not a short-term lucrative business like the high-tech electronics or fashion industries. This business can only be successful by making long-term continuous efforts and giving steady and consistent satisfaction to all our partners.
I believe that the pursuit of a short-lived, quick profit cannot succeed in our line of business."
Lee also noted, "actions speak louder than words...even though there is still a long way for us to reach the level of a top tier tire company, we will do our utmost efforts to get there, making you, our esteemed partners, successful with us."
For more information on the meeting, click on "Hankook announces associate dealer program."