Mid-Year Report: Kenda preaches premium tire at value price

As the industry reacts to antidumping duties imposed on passenger tires made in some Asian countries, Kenda Rubber Co. Ltd. is focusing its attention on its core proposition: offering premium performance at a value price.

Brandon Stotsenburg, vice president, Automotive Division of American Kenda Rubber Industrial Co. Ltd., said the company will continue to invest in wide array of products that serve the U.S. market, particularly the light-truck segment.

How would you describe business thus far in 2021?

Kenda's orders and shipments are growing rapidly beyond both 2019 and 2020 levels. Our consumers and our channel partners continue to embrace our message of premium performance at a value price.

Although the economy shows strong signs of growth, consumers are actively seeking value, but don't want to surrender expected performance and safety. We are consistently over-indexing in sell-out performance with our channel partners responding to exceptional margin opportunities.

What would you like customers to know about your how your company has tackled the challenges brought on by the pandemic?

Kenda has all of its tire manufacturing plants up and running, capable of 100 percent capacity. Maintaining the best work environment safety while keeping our warehouses, essential offices and manufacturing open in the U.S. remain our best way to keep our employees safe and our customers servicing essential businesses operating.

Kenda stressed safety as part of our global culture and showed that we could increase business by following strong protocol and executing around our value proposition of premium performance at a value price.

Kenda seems to push an idea of "momentum," especially in the motorsports sponsorships. Is that a conscious decision? How do you connect with your customer base?

That is an interesting observation—we do believe that momentum can be a driving force as long as the continued results support our longer term goals established by Jimmy Yang, our global CEO.

Much of Kenda's B2B customer base are retailers serviced by our great distributor partners. We utilize multiple communication platforms, including podcasts, improved email platforms and digital meetings to get our messages to the distributors and retailers.

The key is that the channel partners are open to receiving the information based on our strong margin platform. We emphasize our focus on our channel partners' business results based on tangible evidence—as you mentioned our motorsports approach, we embrace platforms that utilize the same DOT tires sold by our retailers to the consumer through our tagline Podium2Pavement.

We love competing with other great brands in this true, open competition and worked hard to see Kyle Kleiman win the 2020 Pro 2 division and Brush Run in the Championship Off-Road Series. We have seen the momentum from these activities as consumers see these results and search for more information.

In Kenda's case, we have a growing online portfolio of third-party testing and endorsements that offer the consumer additional reasons to consider our products. When the retailers are asked about the Kenda products, most will tell the consumer that the performance and value are truly outstanding—that momentum continues to grow!

What is the key to success for Kenda to thrive in the U.S. market?

The key activities are assuring the consistency supporting our product and brand development, operational improvements and all elements reinforcing premium performance at a value price.

In the mid-term, American Kenda is owned by a global company that is well positioned to accelerate growth in North America. We have established a broad range of premium products that are unparalleled with PCR, LTR, ST radial, ATV, UTV, motorcycle, golf, lawn and garden, light industrial and bicycle. Our products are complementary, and we offer many options to allow our channel partners to offer products to cover most of these segments.

Kenda is working on new products and supply-chain system improvements that will provide our customers better solutions moving forward. We are continuing to work on online options for education and also adding more people to support growth plans. Underlying everything will be fair global trade policies, which balance imports with domestic production.

Do you expect any supply difficulties in the second half?

Kenda is working quickly to balance our production needs with the growing demand across many product segments. The recent trade policy decisions combined with the associated supply-chain shortages and cost increases have been a challenge.

We continue to have longer lead times for our automotive products, both passenger and light truck, as well as some of our associated segments, trailer, ATV and UTV. The factory investments to improve these conditions have been made and our global team is working around the clock to overcome the issues. We anticipate a better situation as we end 2021.

How has difficulty at ports impacted business?

The biggest challenge right now relates to supply chain disruptions. There are congestion issues at U.S. and Canadian ports, rail yards and ongoing shortages in all areas of domestic shipping.

Ocean freight rates doubled from the consistent rates seen over the past several years. Based on the current limited carriers, shortages of containers and U.S. government trade policies, there are strong indications that this situation will not improve over the next 8-12 months.

What are some of the pleasant surprises?

Miles driven continues to increase as many people continue driving instead of flying and are postponing new car purchases due to the limited new car availability. This is providing the aftermarket retailers additional service and tire opportunities.

The additional shift from Tier 1 to value products has been a benefit for Kenda as retailers are more easily demonstrating our premium performance message and seeing higher margins in return. The interest in light truck tire upgrades is supported by the government's economic stimulus programs.

Interestingly, we have continued to see a strong response to our new Klever A/T2 KR628 and exceptional growth in our Klever R/T KR601 product—this indicates that consumer demand for high quality light truck products, including plus-sizing remains stronger than we initially anticipated.

What kind of trends are you seeing?

We have seen the strong shift to value products has not subsided with the economic upswing—consumers continue to be conservative with tire replacement and don't want to overspend.

This situation is further enhanced by the cost increases everyone is seeing driven by supply chain. These costs continue to make consumers aware of the tire pricing and opportunity to seek value. Retailers offering that proposition with brands like Kenda seem to be over-indexing in all markets.

Overall demand continues to be strong, but light truck applications are over-indexing with our Kenda Klever growth rates continuing to be exceptional.

What is your reaction to the Commerce decision on import duties?

Like everyone in the industry, we are waiting for the ITC to issue its decision(s) regarding the final decisions proposed by the DOC. For Kenda, we have been sourcing tires for the U.S. market from Taiwan and Vietnam.

We are committed to providing a complete product screen positioning Kenda as premium performance at a value price and will adjust our sourcing to offer the best solution to meet that commitment.

The biggest challenges involve the capital investment and short-term expenses to adapt our production footprint, which has slowed other planned investments in new product development. This has disrupted our previously planned investments in order to meet the needs of our channel partners. Although it has been difficult, Kenda will continue to build on its strengths.

What do you think it will mean for the tire industry in Asia?

Anytime governments disrupt supply chains, there are global implications. The Asian tire industry is generally growing and will always try to support its domestic and regional demands.

As Tire Business has shown, imports to the U.S. are directly related to the duty rates imposed by the government's decisions with the U.S. consumer ultimately paying higher prices. There will be continuing shifts for products sourced based on the duty rates associated with specific products.

As Indonesia was not a target of the USW, despite similar or lower pricing than the targeted countries, there will likely be higher imports from there and Eastern Europe until the duty rates change.

How has the market responded to the Klever R/T?

We have seen exceptional growth and response to this product. Kenda believes that the rough terrain segment is best represented by true light truck tires, while our new Klever A/T2 KR628 will have a broader range of P-metric tires while offering the aggressive aesthetics that have made the Klever R/T KR601 so popular.

No segment is immune to economic stress, but the market continues to respond in a stronger way to exceptional value, and we continue to see exceptional growth in this segment—our Klever R/T provides the right sizes and specifications with exceptional performance in both on-road and off-road environments.

Our retailers and consumers are amazed that a tire that won the 2020 Championship Off-Road Pro 2 championship provides such a great on-road experience with exceptional looks and wear. We truly believe that it is the best value available.

What other sectors offer the most growth potential?

For all segments, value products seem to be winning. Retailers want to have products which provide higher margin opportunities with expected performance and "no comebacks." We are also seeing higher growth in RV applications, including trailers, as more consumers are looking to travel this summer.

We have also seen higher demand for our light truck segment, likely due to our new product offerings. We anticipate that those areas will continue to over-index as the economy recovers.

We are also seeing growth in the all-weather segment, which upgrades traditional applications to products offering 3PMSF. Kenda added its Klever A/T2 KR628 tire to this offering and we have seen tremendous response to this product.

We do believe that the North American market will continue to look for more products that offer true, four-season performance. Kenda is evaluating the best opportunities to meet this need based on our positioning goals.

Do you expect to roll out any additional products in 2021?

Kenda intends to make a new product announcement at SEMA in November. As mentioned, the disruption caused by the U.S. government's actions have slowed some of our planned activities. This short-term slow down should provide great opportunities to showcase our light truck performance.

Additionally, we have recently added several new flotation sizes to our popular R/T KR601 tire line-up, including 37-inch sizes, specific sizes for high-volume jeep applications as well as 33x12.50R24 and 35x12.50R24 that showcase the look that consumers want and the on-road ride capability offered by the Klever R/T.

What has been the overriding factor in price increases?

The overriding factors are supply-chain costs, raw-material increases and the U.S. government's implemented actions regarding increased tariffs and duties. Without this unique combination of factors, the industry would have seen similar responses to previous economic disruption.

Kenda is always watching the market and evaluating our brand position to assure we are representing the value and channel margin opportunity that we have committed to provide. If there are factors which affect the industry cost structure, we will take that into account in addition to the overall economic situation.

Do you expect any major investments in the next six months or year?

Kenda has been implementing a robust capital plan the last several years. The major investments in the near term relate to the necessary production footprint changes previously discussed.

We continue to hire more workers in our Kenda America facilities to support our customers' needs. We also continue to move forward to assure we are meeting our goals across the global markets in the many segments that we participate in.

Anything else to add?

Some thoughts for the independent dealers:

First, continue to take advantage of the government offers for low-cost loans and grants to support small business—having access to cash is going to continue to be critical. Be closely affiliated with your bank and have them assist with necessary capital needs. Be prudent and diligent with all variable expenses and continue to control costs.

Make sure that you have a good relationship with your key vendors—if there are needs for supply and cash flow, have an open dialogue with them so that there are no additional surprises. If you have a good relationship, vendors should be looking to the recovery, which Kenda feels will continue as we move toward the third quarter.

The disruptions caused by the COVID events, supply-chain costs and tariff impacts are being felt by everyone. Retailers and dealers need to be diligent to raise prices to meet their business needs based on margin goals to support their customers in the long term. The industry is trying very hard to adapt to a very dynamic situation, but dealers need to explain the situation to customers and offer fair prices to assure that their businesses will be strong.

For automotive retail, know your local markets and anticipate how the needs of your customers may be changing to be in the best position as we come out of the past reductions in car count. Kenda feels strongly that consumers will want value-priced tire brands, but won't want to sacrifice performance.

We advise dealers to find brands that will offer this promise while allowing the retailer to make above-average margins—in the near term, initial margin at the sale should be emphasized over the back-end additional margin provided by loyalty programs to improve cash flow.