Upon its sell-off to China’s state-run tiremaker Qingdao Doublestar, Kumho Tire vowed to bolster its brand value through autonomous management in efforts to normalize its business, the company said Thursday.

Kumho Tire, South Korea’s No. 2 tiremaker by sales, ended a standoff with its labor union on April 1, with the union agreeing to accept foreign investment, therefore preventing the ailing company from filing for court receivership.

During a visit to Korea to persuade the union and the public last month, Doublestar Chairman Chai Yongsen said, “I will guarantee independent management of Kumho Tire, resembling the acquisition model Chinese auto company Geely employed when it bought Swedish carmaker Volvo (in 2010).”

Kumho Tire welcomed the recapitalization deal worth 646.3 billion won ($594.6 million), which is widely expected to stabilize its balance sheet. The newly injected funds will be used to expand research and production facilities in Korea, where Kumho’s headquarters will remain.

Following the official signing of the contract scheduled for mid-April, Doublestar will become the largest shareholder of Kumho Tire with a 45 percent share, while creditors hold 23.1 percent.

Priority will be given to upgrading the tiremaker’s production line for eco-friendly tires, with aims to step up competitiveness, the company said.

By normalizing production in China, Kumho also seeks to gain price competitiveness, it added.

Despite surplus seen at factories here, Kumho Tire had recorded losses, largely due to the poor performance of its China plant, which makes up some 36 percent of the company’s production capacity.

Demand for Kumho’s products had decreased in the Chinese market after a program aired on China’s state-run TV network CCTV showed Kumho Tire using leftover rubber to cut down costs in March 2010.

Kumho Tire will continue supplying original equipment tires to carmakers worldwide, the company said.

Original equipment tires refer to tires installed on new vehicles. Although such tires do not generate much profit, they contribute to improving brand image.

Kumho Tire has supplied original equipment tires to automakers such BMW, Mercedes-Benz and Volkswagen. 

By Kim Bo-gyung (lisakim425@heraldcorp.com)