Hankook CEO sees 2007 as a crossroads for the tire industry

Feb. 7, 2007

The impact of Asian tire manufacturers on the global tire industry will continue to increase, according to Cho Choong Hwan, CEO of Hankook Tire Co. Ltd. But it will be the manufacturers who address brand value and differentiation, technological innovation, and global management structures that will prosper.

In a company-wide memo following the latest Hankook achievement -- a one-month export sales record of more than $100 million in January -- Cho shared his global vision for the tire industry and the competitive challenges in the year ahead.

"2007 is a crossroads for the tire industry. We are emerging from a period of over-supply, sluggish consumption and a sudden rise in raw material costs.

"There are huge opportunities, however, for well-positioned and competitive tire manufacturers, as natural rubber prices are stabilizing, consumption in Europe is beginning to recover, and we're seeing considerable growth from the BRICs markets."

According to Hankook, the average purchase price of natural rubber in 2006 was $1,930 per ton, up 52% from 2005. (The company predicts natural rubber prices will stabilize between $1,800 and $1,900 this year.) Cho says this raw material price increase was due to supply demands that coincided with the seven- to eight-year cultivation cycle of the rubber plant

The purchase prices of carbon black and synthetic rubber went up 27% and 6%, respectively, last year and are expected to experience steady increases pegged to changing oil prices.

There has been considerable growth of production in developing nations, both from traditional manufacturers and emerging players from the BRICs nations, according to Mr. Cho. Although demand is still growing in these markets, the rate of production is outstripping demand, resulting in a rise in overseas exports, particularly from China.

"The increased choice of tires is good news for dealers, as there is a greater range of cost options for their customers and an increasing supply of competitively priced premium tires from established manufacturers like Hankook Tire who are leveraging production facilities in these emerging markets.

"What is essential is that our dealers and customers can recognize the premium quality and technological innovation of our brand over emerging competitors."

Hankook Tire plans to continue to invest 4% to 6% of revenue in marketing. The move reflects the increased global brand building efforts of the company and its focus on ensuring customer value. The company also has reinforced its commitment to its Quality Assurance Network, increasing its focus on delivering enhanced customer care.

"It will be the Asian tire manufacturers who have the most to gain, Korean and emerging Chinese companies in particular," wrote Cho. "Quality and reputation of product, technology, and global management structure and production facilities will be the key differentiator in becoming a true tier one global leader.

"The rise in Asian tire brands and their quality will in the end benefit the most important people: the customers."

(In the North American market, President Greg Pae has laid out a plan for 2007 that falls neatly in step with the global goals of Cho. "Our total new tire sales volume for 2006 in the U.S. surpassed $613 million," says Pae. "That's an increase of 22% over the previous year." Pae will reveal some of his plans for Hankook Tire America Corp. at the Hankook Dealer Meeting in Palm Springs, Calif., on Feb. 8.)

Hankook Tire Co. Ltd., with the help of stabilizing rubber prices and growing sales in its ultra-high performance tires, is targeting an operating margin of 9.4% (tire sales only) in 2007. The company will focus on establishing global management systems, which will raise organizational, processing and personnel capabilities to globally recognized standards and ensure greater levels of customer service and product quality.

Hankook is targeting global sales of $3.6 billion in tire sales in 2007. It also will continue to invest 5% of its revenue in research and development at centers located in Korea, China, Germany, Japan and the United States.