Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Korean tiremakers suffer serious downturn
Hankook Tire's research lab in Daejeon / Courtesy of Hankook Tire
By Nam Hyun-woo
By Nam Hyun-woo
Hankook Tire, Kumho Tire and Nexen Tire are suffering a serious downturn as their combined sales in the first half declined by more than 1 trillion won ($842 million) from a year earlier due to the protracted slowdown in the global automotive industry amid COVID-19.
Along with the pandemic, the companies are each suffering from declining orders, owner family conflicts and labor disputes, casting a cloudy outlook on their profitability for the rest of this year.
According to the companies' regulatory filings, Hankook Tire's sales in the first half of this year stood at 2.8 trillion won, down 17.2 percent from a year earlier, while during the same period Kumho Tire's sales shed 18 percent to 956.3 billion won and Nexen Tire's sales plunged 24.9 percent to 773.8 billion won.
When combined, the three tiremakers' sales in the first half dropped to 4.53 trillion won, down 18.8 percent or 1.05 trillion won.
Profitability also backpedaled in the second half, with Hankook logging a 28.5 percent year-on-year drop in its operating profit for the first half of this year and Nexen posting a 97.4 percent drop. Kumho swung to an operating loss of 53.9 billion won during the same period.
Their earnings were impacted by the slowdown in the global automotive industry in the wake of COVID-19. According to the Korea Automobile Manufacturers Association (KAMA), the vehicle sales volume in seven major markets _ the U.S., Europe, China, India, Mexico, Brazil and Russia _ stood at 21.84 million in the first half of this year, down 29.6 percent from a year earlier.
Since the drop in vehicle sales directly affects sales for tiremakers' original equipment manufacturer (OEM) products, analysts attributed the companies' disappointing earnings largely to the slow recovery in their OEM tire sales to global carmakers, many of which have shut down their plants due to the coronavirus.
Industry officials said tiremakers' OEM tire sales were aggravated further as orders from domestic carmakers are declining.
Since last year, Korea's top carmaker Hyundai Motor Group has been increasingly importing OEM tires for its new Hyundai and Kia vehicles. Previously, the carmaker used imported OEM tires for flagship models, including Genesis vehicles and the Palisade, but it is now using Michelin, Goodyear, Pirelli, Continental and other import tires for its new models.
Except for the LPG model, all versions of the eighth-generation Hyundai Sonata, which debuted here last year, are equipped with imported tires. Kia Motor's new Sorento and Carnival also use imported tires.
Kumho Tire's Majesty9 SOLUS TA91 tires / Courtesy of Kumho Tire
Along with market circumstances, internal issues are also throwing challenges at the tiremakers.
Hankook Tire's owner family is now embroiled in a conflict over control of the group.
Last week, Cho Hyun-sik, vice chairman of Hankook Tire's parent Hankook Technology Group and the first son of Chairman Cho Yang-rai, released a statement questioning his father's recent decision to hand over his 23.59 percent stake in Hankook Technology to the second son, Hankook Tire President Cho Hyun-bum.
In the statement, the eldest son expressed doubt over his father's ability to make sound decisions and declared that he will join a lawsuit filed by his sister Cho Hee-kyung to seek legal guardianship of his father.
While Hankook Tire is embroiled in a family feud, Kumho Tire is in a dispute with its temporary workers' union.
In July, the union filed a request for a local law court to seize the company's bank accounts as part of its demands to change the status of its members to permanent full-time workers, and the court accepted this, resulting in the company becoming unable to pay incentives to employees and make payments to partner companies.
As a high court ordered a stay of execution on the low court order on Aug. 25, Kumho resumed making payments, but a number of suppliers have already ended their contracts with Kumho, leaving the company with remaining difficulties in putting its operation back on track.
“With global carmakers showing a slow recovery, the outlook is bleak for any short-term rebound of tiremakers,” a car industry official said. “As each company also has its own internal issues to address, uncertainties are also weighing on them as downward pressure is exerted on their share prices too.”