Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Kumho Tire unlikely to meet earnings target due to fire
Firefighters extinguish a fire at a factory of Kumho Tire in Gwangju, Sunday, a day after the fire erupted. Yonhap
By Lee Min-hyung
CEO pledges to prevent further accidents
Kumho Tire is unlikely to meet its annual earnings target of 5 trillion won ($3.57 billion) following a devastating fire at its key manufacturing facility in the southwestern city of Gwangju.
The plant is responsible for approximately 20 percent of the firm’s total tire production. According to the company, the Gwangju factory produced some 12 million tires last year, out of 61.39 million manufactured at its eight plants around the world.
The Gwangju plant was built in 1974 and served as the firm’s third-largest production line following ones in Vietnam and Gokseong, South Jeolla Province.
With the fire suspending the Gwangju plant's operations, Kumho Tire is facing the risk of losing market share to competitors until the situation is resolved.
The company had previously decided to raise its tire production by 6 percent to 65 million globally in hopes of achieving a record annual sales target. With the plant's recovery expected to take a few months, however, the company is expected to revise down the figure.
A helicopter drops water on a Kumho Tire factory on fire in Gwangju, Sunday. Yonhap
The fire is expected to deal a heavy blow to Kumho Tire’s earnings trajectory, which had been on an upward trend in recent months. The company reported annual sales of 4.53 trillion won last year, up 12.3 percent from the previous year. Operating profit also jumped 43.7 percent to 590.6 billion won, driven by strong tire sales in key export markets such as the United States and Europe.
The company extended its improvements in the first quarter of this year, posting 1.2 trillion won in sales, up 15.5 percent from a year earlier. This was a record high for a first quarter.
Kumho Tire was already facing concerns over the potential impact of the U.S. Donald Trump administration’s proposed 25 percent tariff on auto parts. According to the company, it sells approximately 15 million tires annually in the United States, but only 3.5 million of them are produced locally — meaning the remaining 11.5 million could be subject to the tariff.
Against this backdrop, the fire is expected to deliver a double whammy to the company’s second-quarter earnings, further straining its supply chain and raising uncertainty over its short-term recovery prospects.
The fire broke out shortly after 7 a.m. Saturday and firefighting authorities said the main blaze was extinguished as of 5 p.m. Sunday. The fire burned down more than 50 percent of the firm’s rubber refining factory.
The company will also face difficulties in timely tire delivery to global carmakers, such as Hyundai Motor and Kia. Kumho Tire could become mired in litigation risks from its clients due to the delayed deliveries.
Reflecting on the concerns, the tiremaker entered emergency mode to immediately relocate its tire production from the Gwangju factory to others.
"We are in close talks with automakers to stabilize our original equipment tire supply to them," a company spokesperson said.
Kumho Tire CEO Jung Il-taik also issued a public apology Sunday for the accident and pledged that the company would do its utmost to deal with the aftermath.
“We would like to deliver a deep sense of apology to the citizens and customers who have been damaged by the accident,” Jung said. “Kumho Tire will make all-out efforts to sort out the aftermath and prevent similar accidents.”