With the industry in flux as North America continues to grapple with the COVID-19 crisis, Hankook Tire America Corp. President Sooil Lee said the tire maker is well positioned for the future. Mr. Lee said Hankook has taken the initial steps toward a phase two expansion at its plant in Clarksville, Tenn., and has offered its first-ever rebate for its Laufenn brand, as consumers move toward value-driven products.
Q How would you describe business thus far in 2020?
A 2020 has presented the industry with many challenging and unique factors. COVID-19 has impacted every part of the industry, from logistics and supply chain to the way consumers are changing their purchase behaviors. These are challenges that the entire industry is facing and will likely impact the way the companies and consumers make decisions going forward.
Q What are some of the key changes the company has made in order to keep employees and customers safe during the COVID-19 pandemic?
A Hankook Tire has taken precautionary steps to keep its employees safe by temporarily suspending operations at the Tennessee plant as well as encouraging/requiring employees to work remotely wherever possible. Additionally, we have enhanced our cleaning procedures and are regularly disinfecting workspaces and common areas.
For employees who are unable to work remotely, we are performing daily temperature checks (before entering workspaces), requiring that employees wear masks and stay at least six feet apart, and limiting the size of groups of employees working in closer contact.
Hankook is also providing frequent training and educational materials to inform staff about safety precautions. Our Tennessee plant has since reopened and is also taking these precautions to protect plant employees.
Hankook Tire global headquarters also provided masks and sanitizer for its global network since the early stages of the epidemic to keep its employees safe.
For our customers, we have been refraining from in-person visits to avoid the spread of the virus and have ramped up communication with dealers to ensure that their needs continue to be met.
This includes regular updates via phone, email platforms and video meetings in order to plan for future demand.
Q Do you expect any supply difficulties in the second half of the year? Why or why not?
A Our U.S. warehouses have remained operational and our Tennessee plant is now open, so we do not expect an interruption in supply. We manage our supply through our SKU (Stock Keeping Unit) system so that we can efficiently supply customers in accordance to their demands with optimal fill-rate.
Additionally, Hankook is a global company with manufacturing facilities all over the world in several different continents. We are confident that our supply will remain strong.
Q The USW has petitioned to for antidumping and countervailing duties on passenger and light truck tires made in Thailand, South Korea, Taiwan and Vietnam. What is your company's reaction?
A Hankook has been notified and is looking into details. This does not only concern Hankook, therefore, cooperation under the Korea Tire Manufacturers Association (KOTMA) will need to be reviewed.
We do want to point out that 60% of the tires exported from (South) Korea are for OE supply purpose, not replacement.
Nevertheless, Hankook is reviewing different options to best meet consumer demand such as producing OE tires in our Tennessee plant.
We will reorganize our global production portfolio and increase U.S. plant production to meet our U.S. stakeholder demands.
Q How might additional duties impact the industry?
A It's difficult to say at the moment as it's still in the early stages and nothing has been decided.
However, if duties are imposed, we expect that product costs will likely increase, which might have a negative impact on consumers. Manufacturers that have production facilities in the U.S. can use this as an opportunity to increase their U.S. production.
Q Where do you see the industry markets heading during the last half of 2020?
A We are hoping that there will be a lot of pent-up demand for new tires, so we are building up stocks in regional distribution centers and preparing additional segments and new product launches.
At this time, it is difficult to determine when the tire industry will emerge from the current situation as that will depend on many different factors such as an increase in driving and the normalization of the economy. Fortunately, we are beginning to see an uptick in demand, so we are hopeful that markets will continue to stabilize.
Q What kind of trends are you seeing in the marketplace? How is your company reacting to them?
A We are very surprised by the speed of the market correction we have seen in the month of May. We believe Hankook to be very well positioned in terms of performance and competitive price point.
One of the trends we are seeing is the trading-down effect. People are going for more value-for-money products. To accommodate this movement, we are actively promoting Hankook's second brand, Laufenn.
Earlier this year, Hankook Tire America announced is first Laufenn rebate program for the U.S. consumers, which was received well by our customers. In difficult times like these, we must consider the end-user value.
Q What sectors look to be strong? Are they sustainable?
A The long-haul TBR segment is still doing well due to high demands in delivering food and other commodities during this time. In the short term, we expect relatively stronger demands for budget-segment products and growth in all-weather product markets, as we expect consumers will gravitate towards cost effective all-season options rather than seasonal products.
We are noticing the effect in our sales, many customers are looking for our Kinergy PT and Kinergy ST, Hankook's all-weather products.
Q What sectors are struggling? How soon do you expect them to rebound?
A Premium and UHP products as well as seasonal products will likely suffer, as most consumers will be looking for more affordable options. We expect that people will seek budget-friendly, all-season products that they can get the most use from. There are also struggles for OE tires as car makers had to shut down plants due to COVID-19.
Q Hankook recently expanded the size range of its Kinergy PT and ST all-season touring tire lines by more than 50 sizes. Is that product being well received? Is that a segment that has growth potential?
A The expansion of these sizes was an effort to capture the growth in rim diameters over the last couple years spurred on by new OE fitments. The industry continues to place greater emphasis on all-around performance, so there is growth potential in the touring segment.
Q Do you expect to roll out any additional products in 2020? What will they be and what sector will they serve?
A Yes, we plan to launch an all-weather passenger tire in the third quarter, and we have also expanded our Kinergy PT and Kinergy ST lines with more than 50 new sizes in 2020. We launched a TBR product in April (SmartCity AU04) and will be launching additional TBR products later in 2020.
Q Do you foresee any price hikes in the second half of the year?
A At this point, it is hard to tell as that will depend on several factors that we cannot fully predict now. COVID-19 has greatly impacted the industry, and while we are seeing demand gradually normalize, it is still relatively unstable.
If the tariffs are put into place, we will most likely see price increases.
Q Do you expect any major investments in the next six months?
A We are taking this time to invest heavily in our R&D, executing more tests to develop even more innovative products. We see this is our opportunity to further explore innovative ideas so that we are prepared when things are back to normal — and this is an exercise where we feel confident we can excel.
Additionally, we have begun initial steps toward the phase two expansion of our Tennessee plant.
Q How has the UHP market fared in light of the proliferation of LT, SUVs and CUVs? Are you seeing growth and potential for future growth? Any new innovations in the segment?
A There is a steady demand for UHP market despite the surge in LT, SUV and CUV sector, and we are prepared to fit the demand with our UHP Ventus products, such as the award-winning Ventus V12 evo2 and Ventus S1 nobel2. LT, SUV and CUV markets will continue to grow. We plan to launch and add new product lines in these segments to match the increasing demand.
Q What are some of the challenges of the industry going forward? What keeps you up at night?
A With unique events such as the COVID-19 pandemic, it is an interesting time in the industry that we have never seen before. Not only have the logistics of the industry changed, but so has the overall behavior of the consumer.
Any historical data is now irrelevant as consumers are reevaluating their priorities in terms of purchases and overall need. These new behaviors coupled with the significant decrease in travel have presented us with many unknowns that we now must navigate as an industry.
The entire industry will focus on obtaining local production and local supply while expanding their product lines to include premium products that offer great value for money.