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March 10, 2010 01:00 AM

Hankook expects high 2009 sales to continue

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    ST. THOMAS, U.S. Virgin Islands—Hankook Tire America Corp. and its South Korean parent Hankook Tire Co. Ltd. bucked the industry sales trend in 2009 in a good way.

    While most of the world's largest tire makers are reporting lower sales for the recently concluded year, Hankook's went up, company executives said.

    In North America, in spite of the economic recession and dramatic decline in new car sales, Hankook's tire sales grew 8.3 percent to $844.3 million, the company's top executive, Soo Il Lee, told about 100 tire dealers attending Hankook Tire America's dealer meeting in St. Thomas.

    The U.S.-based subsidiary looks for that trend to continue, with sales expected to exceed $900 million in 2010 and reach $1 billion in 2011, Lee said.

    Broken down, Hankook's North American passenger tire sales rose 5.3 percent last year to $575.2 million, while light truck tire sales grew 26.2 percent to $159 million. Truck tire sales improved 2.2 percent to $110.1 million.

    Lee attributed the company's success to the partnerships it has forged with its dealer network and stressed that even in the slow economy Hankook's mission and focus remains the same: to “deliver market-driven, high-quality products that provide exceptional value for the consumer and a profitable, competitive edge to our dealers.”

    Hankook also was helped in the past year by “a kind of trading down,” he said, as many consumers moved away from expensive tires to more reasonably priced ones with good quality.

    “What consumers are really looking for is value,” said Todd Hershberger, senior vice president of sales and marketing. “And that's really what's helped us in a difficult economy. That's what we represent—a great quality product.”

    Globally, Hankook's sales rose to a record $3.9 billion from $3.7 billion in 2008, according to Lee, who replaced H.Y. (Greg) Pae as Hankook Tire America president Dec. 1.

    “To give this achievement some perspective, this means Hankook Tire has practically doubled its global sales in just the last five years,” he said. “This remarkable growth is consistent with our plan to be one of the world's top five tire companies by 2014.”

    The company essentially has pulled even with, or perhaps even passed, Yokohama Rubber Co. Ltd. for No. 7 among the world's tire makers and is gaining on Sumitomo Rubber Industries Ltd. for the No. 6 spot, according to publicly available data. Yokohama's fiscal year doesn't end until March 31, so an exact comparison is not yet possible.

    At the same time, Hankook more than quadrupled operating income last year, pushing the profit/sales ratio up eight percentage points to 11.4 percent.

    Hankook sold nearly 71 million tires worldwide in 2009 and is targeting 80 million tires in 2010, Lee said. Within five years, the objective is to hit 100 million tires.

    Dealing with backorders

    At the moment, though, the company is facing backorders for tires.

    “We have orders but cannot produce in time because our capacity is limited compared to the orders we are receiving from all over the world,” Lee said. “In the U.S., we have a lot of orders for passenger and light truck (tires), but we are a little slow in TBR (truck, bus radials).”

    Hankook is expanding plants in China and Hungary, the latter of which will see capacity double to 10 million units annually. In addition, the company is considering building a plant in Southeast Asia.

    “Our growth (objective) for this year (2010) is fairly substantial,” Hershberger said. “And as 2011 comes and we have had more expansion take place, then we will be able to get even more tires from our Korean plants.”

    Asked whether Hankook would consider building a factory in the U.S., Lee said it's possible, but that this will take time to happen. Hankook would need enough market share in the U.S. to accommodate a plant with the capacity of 10 million tires, he said.

    Brand positioning also is very important, he said. “If we don't have the good brand position here, it doesn't make sense to have a factory in the U.S.”

    To help in this area, Hankook is boosting its marketing budget worldwide by 50 percent, Lee said.

    In the U.S., Hankook's marketing budget is 20-percent higher than the year before, said Bill Bainbridge, director of brand communications, with the increased ad dollars spread across all of the company's marketing efforts. Several areas will see increases, including print and online advertising as well as Hankook's sponsorship of home plate signage at several Major League Baseball stadiums.

    Looking at 2010, Hershberger cited economists who suggest a gradual recovery is on the horizon, but he reminded dealers that consumer confidence remains low, unemployment too high and credit tight. This, he said, will continue to slow the economy down.

    Yet two leading indicators in the tire industry suggest a moderately rising trend. One is that vehicle miles driven are trending up from 2008 and freight volumes are starting to grow.

    The tire industry is projected to follow this same path, he said, with passenger tire shipments growing 2 percent in 2010 and truck tires 6 percent.

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