The business philosophy of J.B. Kim, president and CEO of Kumho Tire U.S.A. Inc., is simple: “Focus on the customer and take care of his needs in any way possible.”
Building strong partnerships between suppliers and customers takes mutual effort, and that effort is both the top priority and a continuing process at Kumho, according to Mr. Kim.
“To accomplish this task, we must constantly challenge how we do business,” he said during a phone interview from his office in Rancho Cucamonga. “For example, over the past few years we have worked very hard to provide our clients with the tires they need when they need them.”
Kumho has consolidated its warehouses to make sure inventory was in the right place at the right time, Mr. Kim said. The company also improved its logistics systems to reduce the time between orders and receipt of orders.
“We have initiated monthly collaborative meetings with many of our clients,” he said. “We get the actual people from our company responsible for operation, sales, warranty and marketing together with our clients by phone, and initiate real solutions to joint challenges to improve our service and profit from our brand.”
Changes in the industry
Like other tire makers, Kumho faces challenges caused by the rapid changes in the industry. Size proliferation, an evolving product mix caused by shifts in vehicle purchases and the consolidation of distribution channels are only some of the biggest changes, Mr. Kim said.
“For the second half of 2012, we see cost increases as one of our largest challenges,” he said. “Many of our clients are telling us they cannot pass more increases on to consumers, and recent industry studies show profit margins for dealers are being squeezed as a result.”
Kumho has resisted price increases since the first of the year, though other manufacturers have raised prices, Mr. Kim said. “We believe costs will continue to rise through the remainder of the year, putting more pressure to raise prices on all manufacturers.”
Industry consolidation is making the big get bigger on the retail side and changing the regional players on the wholesale front, he said.
“We are also seeing an expansion in large dealers building new locations,” he noted. “This evolution is changing the tire distribution landscape in many ways. For an acquired location, the brand names may be changing and the entity supplying them may change. But as the big get bigger, new inventory control measures must be implemented.”
With retail groups gaining power, there are more consumer rebates and associate dealer reward programs targeting brand loyalty or switching dealers from one brand to another, according to Mr. Kim, head of the U.S. subsidiary since August 2008.
“We will continue to have new programs developed, geared to moving tires through the entire system, creating program-type sales,” he said.
Government regulation is a constant consideration for the tire industry. Two of the biggest pieces right now are the pending tire fuel-efficiency labeling rules expected later this year from the National Highway Traffic Safety Administration, and the prospective end in September of a three-year round of tariffs on passenger and light truck tires imported from China.
In the case of tire fuel-efficiency labels, the true impact may not be the labels themselves, but helping consumers understand what they are reading, according to Mr. Kim.
“Of course we will have to produce new labels and add rolling resistance grades,” he said. “We will have to implement testing schedules to produce the correct information for the labels, which will increase costs.
“The larger impact will be the training and information availability systems we will need to create to make sure dealers and consumers understand what they are looking at,” he said. “Expect to see significant efforts from the industry, either through government mandates or through the Tire Industry Association, to educate dealers and consumers.”
The impending end of the tariffs on Chinese tires is one of the hottest topics in the industry right now, Mr. Kim said. “We are asked every day what we think will happen,” he said. “At this point, no one knows what will actually happen.”
Kumho moved its Chinese production immediately after the tariffs were instituted in 2009 at what Mr. Kim said was “a tremendous cost.” The shift of production to South Korea and Vietnam cost the company millions of dollars, he said.
However, the company kept tire molds in its Chinese factories and will again produce tires in China for the U.S. market if or when the tariffs expire, Mr. Kim said.
“If the tariff is terminated, we expect other Chinese manufacturers will reduce prices for the U.S. market—most probably not at a 25-percent rate, however. We have already heard rumors from the market concerning some brands that have already begun talking about realigning prices.”
Marketing, social media plans
At the start of 2012, Kumho implemented marketing and social media plans to enhance its popularity among dealers and consumers alike, according to Mr. Kim.
“We made significant changes to our Fuel Associate Dealer Program that increased the reward for purchasing Kumho UHP products and made it easier to earn rewards,” he said. “We are also offering consumer rebates of $50 for purchasing a set of four select Kumho-brand UHP products with support from a nationwide advertising campaign including print, radio and television media that will run through August 2012.”
Kumho also has stepped up its social media efforts to the point that, whereas it had only 1,500 Facebook fans in mid-2011, it has 139,000 now. Through Facebook the company will offer new promotions, including tires, gasoline cards and purchase rebates, he said.
“We have just launched a viral video effort using innovation and humor to gain more attention to the Kumho brand. Look for a whole series of videos to have been launched by the end of 2012.”