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Hankook looking at sites for first U.S. tire plant

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LAS VEGAS—South Korea's Hankook Tire Co. Ltd. is making plans for its first tire plant in the U.S., with production expected to start before year-end 2015.

Hankook Tire America Corp., the South Korean tire maker's U.S. sales company, has narrowed its search for a North American facility to sites in the U.S. but has not yet selected the specific state, company executives said during an interview at the 2012 SEMA Show.

“Our prediction is to produce here by the end of 2015,” Hankook Tire America President and CEO Soo Il Lee said.

The company will spend about $1 billion to construct the plant in two phases. The first—costing about $700 million—will create a manufacturing operation capable of producing 6 million passenger and light truck tires a year.

“After that we will decide where to go,” Mr. Lee said. That decision could mean doubling the size of the plant to 12 million passenger and light truck tires or adding production for truck and bus tires, he said. The second phase would cost about $300 million.

The plant is still in the planning stages and an official announcement is not expected until sometime next year.

It all depends on how the negotiations go with the states where the plant might be located, said Calvin Pak, Hankook's vice president of marketing.

“We have a very long list and (we'll see) just how fast we can negotiate,” he said. “Maybe next year.”

The new factory will be highly automated and employ at least 1,500 workers initially.

Hankook's desire for manufacturing capacity in the U.S. follows recent strong growth in North America.

Last year, the tire maker reached the milestone of $1 billion in sales in the U.S. and this year it is on pace to improve by another $200 million. In Canada, Hankook's sales this year should be in the $150 million to $200 million range, Mr. Lee said, while those in Mexico could climb by 30 percent to between $70 million and $80 million. Altogether, Hankook should post sales of about $1.5 billion in North America in 2012.

Asked what is driving such growth in a difficult tire market, Mr. Lee cited the quality of the company's products.

Hankook invests 5 percent of total sales in research and development, he explained. “It is kind of an objective opinion of our dealers (that) they are happy about our quality,” he said. “In the tire business, without quality nobody can be successful.”

Another factor is Hankook's investment in the original equipment tire business, Mr. Lee said. This year the company will ship 4.5 million tires to vehicle assembly plants in North America—3.5 million to U.S. plants and 500,000 tires each to OE customers in Canada and Mexico.

Hankook has gained several OE customers in the U.S. in the past year, including recently announced fitments on Ford Motor Co.'s Lincoln MKZ and the all-wheel-drive versions of the Chrysler 300 and Dodge Charger SXT, SXT Plus and R/T models.

The company also fits tires on a number of Korean-built vehicles from Hyundai Motor Co. and Kia Motors Group and on some premium cars from Europe, including BMW A.G., Volkswagen A.G. and VW's Audi brand.

“This kind of OE presence helps (drive) a lot of business in the aftermarket,” Mr. Lee said.

Lastly, Hankook has benefited from its marketing activities over the last five to 10 years, Mr. Lee said, including sports marketing, particularly with Major League Baseball, the company's television advertising and consumer promotions.

“These kinds of marketing activities help a lot to enhance our brand awareness,” Mr. Lee said. “So it's kind of the quality, and OE presence and brand awareness and equity.”

Hankook also has improved its order fill rate dramatically over the past year, he said. After falling to a low of 35 percent several years ago, the company claims its fill rate has improved to better than 80 percent.

The improvement has come as Hankook has increased capacity at all of its plants, including a doubling of capacity at its plant in Hungary to 12 million tires annually. The company also has new tire plants starting up in Indonesia and China.

“Our European operation could take more tires from the Hungarian plant instead of the Korean or Chinese (factories), so it could help us to bring more tires (to the U.S.) from China and Korea,” Mr. Lee said.

The company also has renovated its older factories in South Korea, installing new machinery that allows for the production of larger size tires that are more popular with OE manufacturers.

Worldwide, Hankook now has manufacturing capacity to produce 90 million passenger, light truck and commercial tires annually. Mr. Lee said the company looks to increase that by 10 million units over the next two years.

Globally, the tire maker is operating at 100-percent of total capacity, Mr. Lee said.

At the SEMA Show, Hankook announced it will begin selling the Kingstar brand as a Tier 3 level product alongside its higher-positioned Hankook and Aurora brands. (See story on page 17).

“By introducing Kingstar, we're addressing the segment, but it's not going to be a tire that's going to fight the Chinese brand on price,” said Shawn Denlein, Hankook's new senior vice president of marketing and sales for the U.S. region. “It's going to be more for Tier 3.”

Mr. Lee said plans for Kingstar have been in the works since 2010 and Hankook is building inventory for the product, which is being made at the company's plants in China.

Initial production will focus on passenger tires, with light truck versions added next year.

The company said it will distribute the brand together with Hankook tires from its warehouses in the U.S.

The Kingstar brand will be offered to Hankook dealers who are looking for a tire line competitively priced to compete with the budget brands,” Mr. Lee said.

Worldwide, he described Hankook as a growing company with a good profit. “But we are not following just the profit or money,” he said. “Consistency and a kind of transparency is so important. It is our important principles.”



To reach this reporter: dzielasko@crain.com; 330-865-6131.
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