The most important parts of a car are the engine and transmission. This is because they must exist in order to use a car as a means of transportation. Nowadays, electric vehicles are on the market, and electric motors are replacing them. So what is the most important part in moving a car? It is a tire that is essential for all cars. Most of the countries that are called automobile advanced countries have renowned companies that produce tires. In Korea, Korea, Kumho, and Nexen tires are playing this role.
However, domestic tire companies called Big Three are struggling. In the first half of this year, all three companies recorded a sharp decline in operating profit compared to the previous year, and some companies were in a phase of turning to the red. The estimated total sales this year is also expected to decrease by nearly KRW 1 trillion compared to last year, so the domestic tire industry is in a very dark situation. Why are they struggling? Today, AutoPost Issue Plus takes a step further into the dark current stories of domestic tire companies.
Written Joonyoung Park Editor
-28.5% to -97%
In a big downtrend
Performance of three tire companies in the first half of this year
In the first half of this year, the performance of the three domestic tire companies was at a serious level. Hankook Tire, the largest domestic tire manufacturer, recorded an operating profit of KRW 176.2 billion, down 28.5% from the same period last year. Kumho Tire recorded a loss of KRW 53.8 billion in operating profit, recording a deficit.
Nexen Tire’s operating profit was only 2.9 billion won, recording a whopping -97% increase or decrease compared to the same period last year. To this extent, domestic tire manufacturers’ performance in the first half of this year recorded an unprecedented level of deficit.
This year’s combined sales estimate
1 trillion cost expected to evaporate
The estimated combined sales of the three companies this year are also expected to be very low compared to last year. According to the financial investment industry, the estimated total sales of the three domestic tire companies this year is KRW 10,3158 billion, which is a decrease of nearly KRW 1 trillion compared to last year’s KRW 11,284.8 billion. The operating profit is also expected to decline by nearly 20% compared to last year to only KRW 648.2 billion.
By company, Hankook Tire, the No. 1 company in the industry, is expected to record sales of 6,442.4 billion won and profitability of 5812 billion won this year. In terms of the increase and decrease rate, sales decreased, but fortunately, profitability increased slightly. Both sales and profitability of Kumho Tire and Nexen Tire declined significantly. In particular, NEXEN TIRE’s profitability recorded -80.6%, having a tougher year than anyone else this year.
Due to corona aftermath
Factory shutdown situation
Affected the decline in performance
The biggest reason why domestic tire manufacturers’ performance deteriorated in this way is that the export market was closed due to the aftermath of Corona 19. In the first half of last year, Korea, Kumho, and Nexen tires stopped operating overseas production facilities for one month in April, and temporary shutdowns and production adjustments have been repeated since then.
In the second half of the year, the situation stabilized to some extent, and demand for OE tires for new cars produced at overseas factories recovered slightly. However, in the overseas market, which is so large that it is incomparable to the domestic market, it was not able to sell tires properly throughout the first half of the year, so it was bound to record poor performance.
Declining domestic market share
Domestic tires pushed by imported tires
However, the atmosphere is a little different in the domestic market rather than the overseas market. The domestic market share of Korea, Kumho and Nexen tires continues to decrease year by year. The share of domestic tires is still occupied by imported tire manufacturers.
Tires imported to Korea last year totaled $943 million, an increase of 15.8% compared to 2018. Tire imports, which amounted to only 511 million dollars in 2015, have recently steadily increased and have soared 84% in four years. In particular, tires for passenger cars, which account for 68% of total tire imports, surged by 71.3%.
Hyundai-Kia Motors uses domestic tires
He started to turn away and was hit by a direct hit.
The reason why imported tires were able to continue to increase their domestic market share is that Hyundai-Kia Motors, which has an overwhelming share in the domestic market, is turning away from domestic tires. Since 2015, Hyundai-Kia Motors has gradually started to replace new car tires with imported products rather than domestic ones, and most of the new cars released this year have been shown to be equipped with imported tires.
As Hyundai-Kia Motors, which recorded sales of over 1 million units this year, turned away from domestic tires, it is inevitable that a direct blow will come to the three tire companies.
Sonata, Palisade,
Major cars like the Granger
All use foreign tires
In fact, Hyundai-Kia Motors is increasing the proportion of foreign tires. The Sonata, which is called the national car, uses the French tire Michelin, the Italian tire Pirelli, and the American tire Goodyear. Granger is equipped with Michelin tires, and Palisade is equipped with Michelin and Japanese Bridgestone tires for shipment.
If you look for a car with domestic tires among the recently released domestic cars, it is only about Avante. The major car models that are recording a large number of sales at Hyundai Motor Company are using imported tires as the outgoing tires.
Sorento, Carnival, too
The situation was similar for Kia Motors.
The situation was similar for Kia Motors. Michelin tires are applied to the K7 Premier, and Michelin and Bridgestone tires are installed on the Stinger. Sorento, which caused a blast in the midsize SUV market this year, also uses German Continental tires.
Even in the new carnival, which broke the record for the most pre-contracts in the history of minivans sold in Korea, the use of goodyear and Continental for genuine tires for new car shipments became farther apart from the three domestic tire companies.
The new Genesis cars released this year
All used imported tires
Genesis, Hyundai’s luxury brand, installed imported tires on all new cars released this year. The GV80 was equipped with Pirelli and Michelin tires, and the G80, G70 facelift, and GV70 were also released in the same way, and Korea, Kumho, and Nexen tires were not found. Genesis has been using imported tires as OE tires for the factory for quite a long time.
For high-end products
It’s the manufacturer’s strategy
What is the reason that domestic automakers turn away from normal domestic tires and install imported tires? The industry interpreted this as a manufacturer’s strategy for product enhancement. Imported tires are on average 2~30% more expensive than domestic ones.
Nevertheless, the reason for sticking to imported tires is to enhance the brand value. In fact, a Hyundai Motor Company official said, “There are product performance problems, but imported tires were used to add the image of a luxury car.” It was to increase the brand value by attaching imported tires to popular cars as well as luxury cars such as Genesis.
“Replacement of all Genesis tires”
Steadily on quality problems
Domestic tires that have been suffering
In addition, the fact that domestic tires have consistently pointed out quality problems is also mentioned as one of the reasons why manufacturers switched to imported tires. In the industry, some point out that the decisive trigger for Hyundai Motors to change its route to imported tires was the quality problem that occurred in tires supplied exclusively for Genesis by Hankook Tire in 2015.
At the time, Hyundai Motor Company launched the Genesis BH equipped with Hankook Tire, but due to vibration and noise problems caused by uneven tire wear, a voluntary recall of 43,000 units was carried out. From this time on, the relationship between the two companies began to diminish. Hyundai Motor Company actually installed imported tires on the Genesis DH, which was released after the recall case, by inserting the factory tires with Michelin instead of Hankook Tire.
Hyundai Motor and Hankook Tire
Conflict over acquisition of Hanon Systems
Analysis followed that it had an effect
The fact that the distrust between Hyundai Motor and Hankook Tire deepened as Hankook Technology Group participated in the acquisition of Halla Visteon in 2014 is one of the reasons why Hyundai Motor turned around in the automobile industry. At the time, Hyundai Motor Company strongly opposed the acquisition of Halla Visteon by Korea Technology Group.
However, as President Cho Hyun-beom entered the auto parts business in earnest, the relationship between Hyundai Motor Company and Hankook Tire deteriorated, and many interpreted this as a decisive moment for Hyundai Motor’s turnaround. Various negatives overlapped.
Consumers are also
There is a strong tendency to prefer imported tires
Not only this. It can be said that consumers who purchase new cars also tend to prefer imported tires over domestic products. This is because many consumers are turning to imported tires, saying, “There is virtually no better quality of domestic tires except for cheaper prices.”
As imported tires, which were seen only in some luxury cars in the past, have begun to be applied to popular automobiles, the evaluation continues that “the burden that consumers have on imported tires has decreased a lot.”
In the domestic market
Hyundai Kia’s influence
Can’t be ignored
As for the total sales of domestic cars from January to November this year, Hyundai Motors sold 692,953 units, accounting for 41.5% of the market share. Kia Motors sold 512,911 units, accounting for 35.3% of the market share, while Genesis sold 96,069 units, accounting for 6.6% of the market share. Together, the Hyundai Motor Group recorded 83.4% of the domestic market share.
Therefore, it can be interpreted that tire companies have shown what will happen if Hyundai-Kia Motors does not choose from the Korean auto market, which is a monopoly. The story may be different abroad, but no parts makers can ignore Hyundai Kia’s influence in the domestic market.
To recover domestic performance
OE tire supply
There is no choice but to increase
In the end, there is no other way than to increase the market share of OE tires for new car shipments for the three domestic tire makers to recover their domestic performance. Or, going all-in to the export market could be one way.
In order to increase the domestic market share, along with the recovery of the relationship with the Hyundai-Kia Motors group, tire manufacturers will have to strive to secure quality and develop attractive new products on their own. It was Auto Post Issue Plus.
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