When H.Y. (Greg) Pae was promoted to president of Hankook Tire America Corp. last December, he brought with him the requisite international experience. More importantly, though, for a company often considered one of the quietest among tiremakers, Pae brought a strong and enthusiastic marketing background.
Previously executive vice president of Hankook Tire Co.’s American regions, Pae started his career with South Korea’s largest tire company in 1986. Eventually, he spent time with Hankook’s operations in Poland , Germany and Australia, where he garnered experience in export sales and developing marketing programs.
Pae sat down with Tire Review in late March to discuss Hankook’s most recent successes and where he sees the company’s North American business heading. More information about Hankook is available online at www.tirereview.com.
What are some of your impressions of Hankook in the U.S., and where do you see it in the marketplace?
Hankook is one of the fastest-growing tire companies in the world. We have seen double-digit growth every year for the last 10 years and I am sure that will continue. We have a plan for the next five years and annual plans each year to check our progress to see if we are moving forward. We have had a lot of growth the last several years and have established good relationships with our dealers and OEMs. We have the opportunity to grow there and an opportunity to grow in the marketplace. Over the last few years, we have diversified our distribution channels. We have good employees, good products, good customers and dealers. I feel very comfortable with our future overall.
What are your specific goals as president of Hankook Tire America ?
Last year, in the U.S. alone, we made $613 million in sales and I’d like to see the numbers grow. I’d like to get the company to $1 billion in sales. That’s my goal, but it will not be easy. My primary job here is to find and add more good people to prepare us for the future.
Are there any plans to add manufacturing capacity in North America ?
We have a new plant in Hungary and we have plants in China. The next stage is some place in North America. We cannot say when, but it will come at some time in the near future.
Hankook’s stated goal is to be one of the top five tiremakers by 2012. What do you see as the U.S. unit’s contribution toward that goal?
Hankook Tire has always focused on balanced growth. We don’t focus on or forecast only for one region whether U.S. or Europe or Asia. We will maintain balanced sales worldwide, even growth in China, the U.S., South America and Europe. We want to grow everywhere in the world, but we want that growth to be balanced by region and by channels. Certainly, taking our sales from $613 million to $1 billion would be a major contribution to our corporate goal. But, it has to be balanced with the rest of the world.
With regard to your dealers, what are the things you feel Hankook needs to do to grow its North American business?
For us to be successful we have to help our dealers make money. That’s the most essential thing. For the final consumers, they have to have high satisfaction with our products. We will focus on those two things and put all of our efforts behind those.
What role will the OE market have in North American growth overall?
We have become a more and more important player in the marketplace and our growth will always be based on balance between market segments. We try to maintain a balance between OE and the replacement market. Our OE threshold is 28 percent, but we are not in a hurry to reach such a level because we don’t want to disrupt our replacement market business. We do not want to pursue new OE business unless we have a corresponding capacity growth. There is a direct correlation between achieving that balance and our growth in capacity.
In terms of your OE strategy, how important do you feel North American manufacturing will be?
So far, we have just finished a big capacity increase with our plants. I agree that, for our future business, we need to have manufacturing here. But, having a plant here would not just be for OE. We will have a production facility in a market if there is a potential in that market to sell to all of our customers.
Talk about the value you place in building a brand in North America . How important do you see that, relative to reaching your goals?
I think it’s apparent that we believe very strongly that most tire consumers and I’m talking primarily retail consumers rely on the dealer to make a good recommendation at the point of purchase. Having an OE position is a building block that helps feed replacement sales, but it is also a credibility issue that helps strengthen and add value to the brand. As people find out that Hankook has OE positions on vehicles that are shared by Michelin, for instance, that helps the value of our brand. But, for the overwhelming number of people coming for their first replacement purchase, having some brand equity is important. It builds confidence for the dealer and his salespeople when they bring Hankook into the mix. Having some awareness for the brand and some identity for the brand makes it easier for consumers to accept and feel good about their purchase. We can never forget that, for a majority of consumers, making tire purchases is not a desirable thing to do. Tires are still a purchase made more out of need, so the better a consumer can feel about a brand and be confident in the point of sale, then everyone will feel confident about that transaction.
Hankook has traditionally focused on independent tire dealers and has not really tried to put tires on every street corner. Looking long term, do you see that changing?
In the retail portion of the business, as you create awareness, you create demand. It’s a natural evolution. As demand goes up, more channels will be interested in the brand, and that will create more points of sale. It doesn’t mean that we will do it at the expense of our dealers. We see much growth potential among independent dealers.
Are there other channels in particular you see as viable for Hankook?
Right now, we’re participating in car dealer distribution programs with GM, Ford and others. That’s been a pretty strong channel for the past few years. Most of the OEMs are in that, and that’s really one of the requirements for you to participate in the OE channel. Another one is chain retail stores like Pep Boys, where we have some business. Our growth goals are ambitious and to achieve them, we need to be balanced we need balanced growth. We cannot take any one segment and say we’re going to get it all here, and I don’t think you can take any other segment and say that we’re not going to do business here or we are going to eliminate a segment. As we grow and build equity, there will be more consumer acceptance and ultimately consumer demand. I don’t think we’re there yet. From a channel standpoint, any of the members of a channel of distribution can sell tires and be nameless and faceless, but it is critical for us to find partners in channels who are interested in building the brand. Independent dealers have been doing that, and our job is to provide even more support to help them do that.
What are your impressions of Chinese tire brands? What impact do you see them having in the U.S. ? What impact might they have on Hankook?
There are two different categories of companies in China . One is the group controlled by major name brands, and the other group is all of the smaller manufacturers. They are very different groups. I feel that, for the commercial market, there is demand for such a tire if the vehicle is getting old and the mileage is high. Maybe there is such demand there for p rod ucts that take a commodity place. On the consumer side, the world market is open, and more and more, it requires a bigger R&D investment. If those manufacturers do not invest, they will have no significant role in the market. They will be stuck in that bottom position.
Do you see some of the lesser Chinese brands having to follow the same path as the Japanese and South Korean manufacturers as they begin to enter the U.S. market?
The smaller manufacturers, I think, might have the desire to do that, but I don’t know if they have the ability to do that. They are competing on price, but if they don’t generate the profits, they will not be able to grow. The technology you need to be a fourth or fifth replacement tire is yesterday’s technology and you can copy that technology from anybody. But, the technology required to be a first or second replacement tire just in sizing alone I just don’t see them having the investment to keep up.
Where do you see opportunities for Hankook in the U.S. , and what are you doing to take advantage of them?
Our quality level is the same as first-tier brands and our price has filled the gap from the first tier to the second tier. As consumers have experience with our product, we are confident they will continue coming back to the Hankook brand. There is room to grow and sell more products to consumers. Also, there is room to grow because of our prices and because of our value to dealers to sell at a higher price and make more profit. If I were a tire retailer, with one shop or 20 stores, or even bigger than that, the quality of the Hankook product is such that I would never have to apologize to a single consumer who had bought a Hankook tire. When that happens, the consumer is getting a good experience, and that will build a stronger relationship for the dealer with that consumer, which is important because they sell brakes and oil changes and other services. Tires are one of the bigger-dollar purchases that a consumer makes. So, if dealers trust the value and quality of the Hankook product and I think we’re earning that every day it’s a recommendation they know will not let them down.