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Kumho aiming for #5 spot—with help from its dealers

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CANCUN, Mexico—South Korea's Kumho Tire Co. Inc. wants to become the fifth largest global tire maker by 2015, and it's counting on its growing chorus of dealers to help it get there.

Kumho Tire U.S.A. Inc. executives told dealers at the firm's annual meeting Jan. 5-9 in Cancun that it has launched several initiatives to reach that goal. Those programs range from internal measures such as increased manufacturing and distribution capacity to external projects such as dealer training and outreach to associate dealers.

“2007 and beyond will bring many new challenges and that's not only for the tire industry but also Kumho Tire Co.,” said B.K. Kim, CEO and president of Kumho Tire U.S.A. “Kumho's primary objective is to earn the position of the No. 5 rubber and tire company by 2015 and the No. 8 by 2009,...but we cannot accomplish this alone.”

Kumho—now ranked 10th globally by Tire Business—would need to more than double its annual sales volume to reach No. 5. Ahead of it now are Cooper Tire & Rubber Co., Hankook Tire Co. Ltd., Yokohama Rubber Co. Ltd., Sumitomo Rubber Industries Ltd. and Pirelli Tyre S.p.A. Current No. 5, Pirelli, recorded 2005 tire sales of $4.5 billion.

Kumho's global revenue in 2006 reached about $1.9 billion, said Dave Hudrlik, senior vice president of sales for Kumho Tire U.S.A., and this year the firm expects to move into ninth place. In the U.S., Kumho posted sales of $465 million in 2006—a 15-percent improvement—and is on track to record $610 million in sales this year.

Getting to No. 5 isn't just a matter of filling the void between Kumho's and Pirelli's sales, said Rick Brennan, Kumho's brand manager.

“Everybody else is going to try to grow,” he told dealers. “We have to go past four companies to get there, and those four companies are not going to let us go by because we want to. So we need your help…. Partnering with you guys is the only way to get there.”

Dealers interviewed by Tire Business said they consider Kumho to have a good shot at the goal.

“It's a big task, but if you set your mind to it, you can do anything,” said Richie Wade, general manager of DiPrima Wholesale Tire in Roseville, Ga. “I think they've got a good game plan, it looks like they're going to put some money behind it and, like they said, a lot of the other guys seem to be declining, so it's a good time to try to step it up.”

Getting there

Kumho officials gave dealers a laundry list of initiatives the tire company has developed to spur sales and improve dealer loyalty. The underlying task, Mr. Brennan said, is for Kumho to grow its brand.

“What we have to do is 'tier up' ourselves,” he told Tire Business. “And by that we mean add capability and add resources because when you look at the scheme of things, we have to be able to sell ourselves as well as a tire.”

He was careful to reassure dealers that the strategy wouldn't start with premium price points. “If you move your price point first, you might as well slit your wrist,” he said.

A major initiative for the second quarter is an online training program for dealers dubbed Edge. The program is aimed at educating counter associates on topics such as tire pressure monitoring systems (TPMS) and Kumho tires. Dealers will receive incentives when employees complete various levels.

Kumho officials said the training program will fill an information void for dealers as well as communicate the company's message to retailers.

Kumho in February also plans to step up an associate dealer program through qualifying distributors. With the program, dealers who commit to buy certain amounts through a wholesaler can access many incentives and promotional items that are now for direct dealers. That move, Mr. Brennan said, will give Kumho a new relationship with these dealers.

Internally, a North American team in South Korea was disbanded to give the U.S. subsidiary a direct line of communication with overseas factories, and staff was added to consumer sales, marketing and customer service departments.

Capacity—especially in light truck tires—has been a challenge for Kumho in recent years. With new plants being built in China and Vietnam, Mr. Hudrlik said Kumho will boost its manufacturing capacity nearly 50 percent to 76 million units by 2010 from 52 million units in 2007.

Kumho also is moving its warehouse functions in the U.S. to just-in-time delivery, no longer doing container loads.

Fill rates at year-end 2006 slipped to 62 percent from about 97 percent for most of the year as the company was hit by factory miscues and demand brought on by the Goodyear strike. Mr. Hudrlik said fill rates should return to normal levels by the end of the first quarter.

Challenges, chances

Chris Wood, president and purchaser for Tire Discounters Inc. in Cincinnati, said Kumho essentially needs to market to dealers even more than to consumers because tire buyers trust the dealers' recommendations.

“Our sales people have to be comfortable with what they're selling,” he told Tire Business. “That's worked so far for us—we sell a lot of the Kumho line.”

That's not to say Kumho can't benefit from marketing to consumers, DiPrima Wholesale's Mr. Wade said.

“People like to buy things they've heard of before,” he said. “If something's 50-percent less and they've never heard of it, they're willing (to buy). But if it's 20-percent less, they're going to go with what they're comfortable with.”

Low fill rates at the end of 2006 were a concern for Arnold Thomas, vice president of Foree Tire Distributors in Denver. “It's hard to sell the product when you can't get it,” he said, though he added he's optimistic the problem will improve.

David Martin, vice president of Martin Tire Co. in El Paso, Texas, said he's interested in the training program to get his employees up to speed on issues. He said the eight-outlet dealership's Kumho sales have risen in recent years to about 15 percent of its business, but he doesn't expect that to grow beyond 25 percent.

“I don't want to be so locked into one particular brand,” he said. “I like to keep it spread out among several different suppliers.”

Kumho, which in recent years sought to improve its sales in part by increasing its share of dealers' business, is essentially competing with a dozen or so companies for the 40 percent of retailers' business generally left over from the Big Three tire makers, officials said.

“I think 25 percent, from where we were five years ago, is huge,” Mr. Hudrlik told Tire Business. “There's still lots of opportunity to grow.”

Asked how Kumho will compete against those other tire makers—which share similar strengths and weaknesses as well as growth plans—Mr. Brennan said: “What it's going to take is for us to do a better job at creating ourselves than they have done at either creating themselves or, in the case of (Cooper and Yokohama), maintaining themselves.”

But Kumho isn't only contending with the five tire makers ahead of it in the rankings. Two of the top 15 tire makers are based in China.

Mr. Hudrlik said Kumho will compete against these companies through its product mix. He pointed to market share numbers—including 4.1 percent in passenger tires, 1.4 percent in light truck, 7.2 percent in ultra-high performance and 11.1 percent in high performance—where the firm has decent share in higher margin categories.

“Mix can solve a lot of evils,” he told Tire Business. “…Since our mix is good, we can continue to supply products (dealers) need in categories that everybody else is trying to get rid of.”

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