Nexen eyes near-term capacity boost

CHANG-NYEONG, South Korea—Running with the big dogs, or bigger dogs, for Nexen Tire Corp. means continuing to expand capacity at its plants to supply its dealer network more effectively, company executives said this week during a plant tour and subsequent interviews.

How the Tier 3 South Korean tire maker plans to accomplish those production goals is through a concerted effort to bring its newest plant, a $1.1 billion project in Zatec, Czech Republic, on stream by 2018

while expanding its already mammoth factory in Chang-nyeong, a two-plus-hour bullet train ride south of Seoul.

Nexen officials called that plant, measuring 5.3 million square feet (about the size of about 86 football fields), the “forward base” for distribution of replacement passenger and CUV tires—no light truck tires—to South Korea as well as OE supply to that country and beyond to global destinations including the U.S.

The fully automated plant, opened in 2012, employs a little more than 1,200 workers who labor 351 days per year in four shifts, 909 of them on the factory floor. However, on a recent tour by Tire Business they were difficult to see—dwarfed by equipment that moved tires from calendering to final destination via an integrated web of conveyors controlled by the touch of a button in a work station.

Want that typical whiff of rubber so much a part of many tire manufacturing facilities? You'll be out of luck at Chang-nyeong—a sophisticated filtering system in the ceiling sniffs out the odors almost completely, leaving a practically odor-free environment punctuated by the low hum of tire-making machinery culled from manufacturers worldwide.

Nexen's self-proclaimed “green factory,” which it called the world's largest passenger tire plant, had been the subject of a three-pronged expansion plan, officials said, that has taken it to 11 million units a year, nearly double that from when it opened. The company's goal is to have the plant cranking out 21 million units by 2018 and, beyond that, 35 million units.

A solar system mounted to the plant's roof churns out a chunk of the electricity needed to power the plant, and LED lighting—even in street lights on the grounds—also saves more power, making the factory eco-friendly, Nexen execs said. The facility includes an education facility, a healthcare/workout area, cooperative store, nearby employee apartments, and workers get free lunches of traditional multi-course Korean food.

Expansion efforts are already under way, as plant manager Eung-Young Lee proudly pointed to an architectural rendering of the facility showing what is under roof and how additional construction will make the increased capacity a reality.

To get to the targeted 35 million capacity goal, Nexen is doubling the size of factory to more than 10 million square feet, he said.

About 60 percent of the plant's output is dedicated for OE, but with the capacity being added targeted for the replacement market, OE output will drop to about 45 percent. Some 10 percent of the plant's product is now for the U.S. market but that percentage will continue to grow, officials told journalists and representatives of American Tire Distributors Holdings Inc. who were on the Nexen-sponsored trip.

The factory now produces passenger tires in 15- to 20-inch rim diameters—no light or medium truck tires—although it is capable of producing tires up to 22-inch diameters, sizes that currently are being made in other Nexen plants, according to the company. Nexen's plant in Qingdao, China, turns out about 13 million units a year. Total annual production stands at 42 million units.

Nexen is considered the world's No. XX tire maker. Fiscal 2014 sales were $1.68 billion, 1.7 percent higher than in 2013. The operating ratio rose to 11.9 percent last year.

Company officials pointed to Nexen's growing OE presence—including fitments in the U.S. on several Fiat Chrysler Automobiles vehicles—as a major reason for its need for greater capacity and its accompanying increased brand awareness worldwide, including in the U.S., where the tire maker sells 4.8 million units.

Speaking with journalists the evening of April 30 following a traditional Korean meal, Nexen President and COO Travis Kang noted the importance of the company's worldwide technical centers—especially in Akron—as No.1 priorities because “R&D means quality and quality is everything to us.

“We need to get a lot of technological know-how from Akron as well as our many other technical centers.”

Kang added that he also will be focusing on the company's marketing programs to continue to raise brand awareness not only to consumers but to potential dealer customers.

Global vehicle makers are using Nexen tires because they “recognize their quality, so I believe Nexen will catch up quickly” with its competitors, he said.

“What Nexen needs is more brand recognition ... in the replacement market, consumer perception of our products must continue to rise.”

He typified the U.S. market as being a “practical” one, meaning pricing needs to be competitive.

“We have to invest in marketing,” he said, “so to jump up to Tier 2 status—we need to get to at least 8 million units of sales in the U.S.”

Last fall, Nexen Tire America Inc. took a step in that direction with the launch of Next Level, an associate dealer program that offers cash-back and other incentives.

And, in hand with that, before Nexen can consider whether to build a plant in the U.S., it must meet those ratcheted-up sales goals that Kang said would justify construction of a new facility stateside.