SAN JOSE DEL CABO, Mexico—Hankook Tire America Corp. plans to step up its North American marketing efforts in 2017 as part of a strategy to grow in a marketplace that looks to remain relatively flat.
One important reason for the 40 percent increase to the marketing budget is the opening in 2017 of the company's first U.S. tire plant, but also from a global perspective the U.S. market is becoming more and more important to Hankook, according to Hee Se Ahn, Hankook Tire America President and chief operating officer.
"So we made a decision to increase our overall funding for the U.S. market," he said during an interview at the company's 2017 U.S./Canada Partner's Day in San Jose del Cabo on Feb. 11.
Hankook has aspirations to grow 15 percent globally in 2017, Ahn said, and the U.S. subsidiary is looking to achieve that same goal.
This follows a challenging 2016 during which the U.S. subsidiary of South Korea's Hankook Tire Co. Ltd. outpaced the North American tire market but fell short of its sales objectives, said Shawn Denlein, senior vice president of sales.
Denlein said Hankook will add a grand touring tire to its portfolio in 2017, the Kinergy PT H737, which will replace the Optimo 727.
Plans also call for the introduction of three commercial truck tires.
Company executives revealed plans to add a sixth U.S. warehouse, in a still-undetermined location in the Pacific Northwest during the second half of the year, which Ahn said would improve delivery time and service to customers in that region.
Hankook's other warehouses are in Dayton, N.J., Savannah, Ga., Los Angeles, Chicago and Dallas.
Hankook is in the process of doubling to approximately 180-200 the workforce at its new headquarters in Nashville, Tenn., which it opened last year after relocating from Wayne, N.J., to be closer to the Clarksville, Tenn., plant, which is about 45 minutes away.
The need for more people reflects sales improvements Hankook has had in North America in recent years and plans for continued growth.
"We recognized that to keep up with that growth and have the growth plans that we have ahead of us we need to add more people," Denlein said. The new hires primarily will be in the areas of information technology, logistics and marketing.
"Basically we wanted to add resources and those resources should transpire over into our dealers to (make Hankook) more easy to do business and quicker response," Denlein said.
Hankook expects to commence production at the Clarksville plant in April and build 1.7 million passenger and light truck tires there in 2017. When the first phase is completed in 2018, the plant will have production capacity of 5.3 million to 5.4 million tires, Denlein said.
Like all new Hankook factories, the Tennessee plant will be constructed in four phases. Phase 2 already is on drawing board and will double capacity to 11 million units. When all four phases are completed the plant will have the capability of producing 22 million tires a year and employ 1,800.
All of the plant's output will be allocated in Phase 1 to the replacement market, Denlein said. Production for OE customers will be phased in as Phase 2 is implemented. Globally Hankook's factories devote roughly 65 percent of capacity to replacement market and 35 percent for OE use.
One of the first tires to come from the plant will be the new Kinergy PT H737, which Denlein said would be available in the third quarter.
The tire will come in 30 sizes, up to 18 inches in rim diameter, and is targeted at the grand touring segment of the market, which Denlein said is projected to grow by double digits in the next year. The H737 will carry a 90,000-mile limited treadwear warranty.
Hankook also plans to introduce three medium truck tires during this year's second quarter. They include the DH37 drive tire, the TL21 trailer tire and the AH 37 all-position tire.
Since launching a national account program in 2016, Hankook has increased its truck tire business and is talking to a lot of the larger fleets, Denlein said. "This was a big milestone for us. We needed the national account to penetrate the larger fleets."
The company also has added a "lot more people" on the TBR side to provide coverage across the U.S.
"The end goal for us for the TBR department is to grow the same way we are growing on the consumer side," he said.
Asked whether Hankook was considering entering the retreading business, the executives said "not at this time."
Nor is the company planning to initiate online tire selling direct to consumers, at least currently. "Like anything else we (will) watch it," Denlein said.
But he also didn't rule it out, noting that he thinks the next few years are going to be really different than previous years in the industry.
The Hankook leadership also isn't ruling out some day acquiring its own retail distribution in North America as a defensive measure, but its first priority is to focus on its strong relationship with its independent dealers, Ahn said.
Today, everybody is going to look for ways to grow in a market that is basically flat, Denlein said, so the challenge is to make Hankook stand out among everyone else. Its strategy includes cutting edge research and development, manufacturing capacity that can meet the demands of the marketplace, logistics, a strong distribution network, and marketing that creates brand awareness.
Globally, Hankook continues to strive toward its goal of becoming the world's fifth largest tire maker by 2020 from No. 7 today. The company also wants to reach a worldwide market share of 5 percent and an EBITA of $2 billion.
In 2016, Hankook had sales of $5.7 billion while generating $950 million in operating income.
Globally Hankook is what Denlein described as economically stable. That is, its sales are relatively balanced, with 30.4 percent coming from Europe, 22.6 percent from the Americas, 19.2 percent from China, 17.4 percent from South Korea and 10.4 percent from the Middle East, Africa and Asia Pacific.
In 2016, Hankook manufactured 103 million tires, making it the world's fifth largest tire maker in terms of production, he said. By 2020, the goal is to reach 130 million tires.
One of the ways Hankook intends to differentiate itself from the competition is through technology, Denlein said. This starts with the company's recently opened Technodome research and development center in South Korea,
Hankook spent $244 million in constructing the center, "which we believe will be the leading R&D center in our industry," Denlein said. It will have 1,100 R&D researchers working there, when fully operational.
Hankook invests 5 percent of its global sales annually in R&D, he added, and in 2015-16 spent $1.6 billion on research and development.
"So when you look at a flat basically industry, we're investing, we have a plan," Denlein said. "We find this a time to move forward because we feel we can separate ourselves and take that next step in becoming a global top-tier brand."
Securing original equipment fitments also is a big part of Hankook's growth strategy. The company has OE fitments on 250 vehicle models from 27 car makers worldwide.
"For us, when we look at advertising, we look for branding, this is an excellent tool for us," Denlein said of the company's broad OE fitments.
In North America, Hankook is counting on the Clarksville factory to help energize efforts to expand its OE presence, especially with some of the Japanese transplant factories, Denleein and Senior Vice President Jae Bum Park said at the 2016 Specialty Equipment Market Association Show in Las Vegas.
Marketing is another area of focus for creating demand for Hankook products, Denlein said, noting added awareness for the company's brands in North America improved to 61 percent in 2015 from 54 percent in 2012. The goal is reach to reach 78 percent by 2020, he said.
The tire maker's marketing and advertising efforts include two television commercials that air in the U.S., motorsports and sports marketing.
Hankook garnered 5.1 million media impressions through its sponsorships of a number of Major League Baseball teams, generating $100 million in media value in 2016, Denlein said.
The company also added nine National Basketball Association teams to its marketing mix for the 2016-17 season, in a move to keep the Hankook name out front during MLB's off season.
Hankook also will step up its support of the Disabled American Veterans organization nationally and looks to increase its public relations share of voice by creating stories and actions "that the press wants to grab onto," Denlein said.
With its headquarters move to Nashville, Hankook also is looking to make its presence known in its local market.
While no decisions have been made, the tire maker is considering the possibility of branding opportunities with institutions such as the Country Music Hall of Fame and/or the Grand Ole Opry, or on structures such as bridges in the city.
"The difference between us, I believe, and others is we have a goal on how to execute to be a top-tier brand," Denlein said.
"This is evident in all the investments we've made in the Technodome, our plant, OE, production, logistics, R&D, OE, production and marketing are keys to our direction moving forward."