Issue: Jan 2005


100 + 10: The Rise and Rise of Hyundai



The Next Toyota

by Gary Witzenburg

Hyundai, Korea’s leading automaker, arrived in the U.S. in 1986 with the Excel subcompact. It sold nearly 169,000 units that year, a record for any firstyear import, and 264,000 the next, largely because it was cheap and presumed to have Japanese-level quality.







 
 The 2006 Sonata will be the first Hyundai built in North America.
It didn’t. Probably the worst car sold in America since the infamous Yugoslavian Yugo, the Excel’s bad reputation soon caught up with its new U.S. distributor, and sales began to slide — to 126,000 by 1994 and just over 90,000 in 1998. “Some thought we would turn out the lights and go home,” said one official.

Instead, working with a modest range of five cars and one SUV (and an industry-best 10 year/100,000-mile powertrain warranty), Hyundai managed to grow its U.S. sales an astounding 347 percent in five years to more than 400,000, 4th among U.S. imports, by 2003 and to an impressive 7th worldwide. Its goal is global top five by 2010.

“Hyundai’s domestic market collapsed [in 1997-1999] as a result of a currency crisis,” says Vice President Global Forecasting, CSM Worldwide, Michael Robinet. “So they had to switch gears very quickly, make a splash in other markets and start exporting more vehicles to keep their factories running. They were able to take that negative and turn the export spigot on, and establishing much stronger export demand helped the company become more established and enabled them to move into new segments. “Also, the weakness of [former Korean competitor] Kia allowed them to bring those two companies together. Much like the Renault/Nissan marriage, Hyundai and Kia have benefited from bringing platforms together. They have more commonality between their two companies and competed in many of the same segments in many of the same markets, so they probably had an easier time of it than Renault and Nissan. But that has been a very good effort.”

As a result, the new ’05 Hyundai Tucson and Kia Sportage compact SUVs share platform and powertrain, and Hyundai’s Sonata has a lot in common with Kia’s Optima. “You’re starting to see a lot more of that,” Robinet says. “But there’s work to be done in filling out their portfolios, especially in the mainline brands, before they make a concerted effort upmarket.”

Hyundai’s remarkable resurrection from near death to a prominent position behind the three leading Japanese in North America — and, with more than 3 million total sales, ahead of two of them worldwide — has been driven by the potent combination of long warranties and high vehicle content at low prices and, most importantly, remarkable progress in product quality. In 2004, it tied Honda for second (up eight positions from 2003), just one defect per 100 cars behind leader Toyota, in J. D. Power Initial Quality Study (IQS) corporate rankings and was fourth in Power’s Customer Retention Survey. The Hyundai brand placed seventh in IQS behind Lexus, Cadillac, Jaguar, Honda, Buick and Mercury and ahead of Infiniti, Toyota and Mercedes-Benz.

Hyundai now operates eight research centers in Korea and four international centers, including a Hyundai America Technical Center in Ann Arbor, Mich., and a Hyundai Design Center in Irvine, Calif. Its integrated automobile manufacturing facility in Ulsan, on Korea’s southeast coast, is the world’s largest.

And the company kicked off a “24/7” (seven new vehicles in 24 months) product introduction campaign last fall with introduction of the ’05 Tucson SUV, to be followed by a new Sonata sedan and luxury XG (in early 2005), a new subcompact Accent (fall 2005) and a new Santa Fe and an all-new minivan in early 2006.

Hyundai’s new state-of-the-art assembly plant in Montgomery, Ala., (modeled after the Ulsan facility) is scheduled to come on-line this March with a maximum capacity of 300,000 units. Those U.S.-assembled vehicles, beginning with the new ’06 Sonata and Santa Fe, will ultimately displace North American sales of American and Japanese makers.

Some have called Hyundai “the next Toyota.” We would say, “Watch out, Toyota!”

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