AI Online


Seoul Brothers

Hyundai and Kia are growing faster than Toyota and Honda; can they sustain the pace and set new records?

Hyundai’s CEO, Finbarr O’Neill, made headlines last year when he said his company was aiming to sell one million cars and trucks annually by 2010. Consider this: in 1998, Hyundai sold 90,217 units and just four years later in calendar year 2002, it sold 375,119 vehicles, putting them ahead of Mitsubishi, Volkswagen, Saturn and Mazda.

Now look at Kia, whose ’02 sales were 237,345 units, beating Lexus, BMW, Mercedes-Benz and Cadillac, to be sure, but more importantly, ahead of makes like Subaru, Acura and Volvo.

Combine Hyundai and Kia (after all, they share the same parent company) and they’re bigger than Nissan without Infiniti, and only about 40,000 units shy of the Honda brand. Now do we have your attention?

Hyundai’s hot. It sells more that 5,000 Santa Fe SUVs each month and Kia’s gone from econoboxes to seven models. Its Sonata-based Optima is comparably equipped and positioned against Camry, Altima and Accord, but for thousands of dollars less. The Sorento SUV does the same number, size and price-wise as Jeep Grand Cherokee. Kia’s popular Sedona minivan is closing on 3,000 units monthly.

“We tend to compare ourselves to the Japanese automakers in the ’60s and ’70s, says Hyundai Director of Marketing Communications, and former Honda/Acura Advertising Manager, Paul Sellers. “We’re looking for 430,000 units in 2003. As the fastest growing brand in the U.S., with very strong closing ratios, we think we can increase volume in every one of our car lines.

“We have a lot of satisfied customers that we call ‘brand zealots,’” Sellers continues. “Our challenge is to make more people aware of what we offer.”

Hyundai and Kia sell ‘affordable newness.’ With median new car prices in the U.S. way above $20,000, many potential customers would be shut out if it weren’t for the Koreans. Despite having domestic production, when transaction prices dip below the low teens, the Japanese and even Ford, with its Focus, struggle for profitability. Chrysler’s Neon is profitsensitive, even though it’s built in Mexico. To win in the entry level segment, you must balance content and quality with low prices.

Hyundai’s 10 year/100,000 mile coverage, a very gutsy move, helped win consumer confidence. Sales rose, encouraging Kia to demand equal treatment. The “Long Haul” warranty sent a key message to consumers who wanted a new car, but were afraid to buy nameplates more associated with budget pricing (read cheap) than longevity and reliability. With the warranty in place, the underlying perception was, now you can buy a Korean car and it won’t let you down. Offering value, as a marketing tactic, is infinitely better than simply being the cheapest.

Combine both, as the Koreans do, and you’re sure to succeed. Students, fixed-income retirees, budgetwise or just savvy buyers can have a worry-free new model.

That’s the Korean marketing advantage. They offer nearly everything their rivals do, plus a killer warranty. Prices often average thousands less than rival best-in-class cars.

Hyundai’s XG350 (not surprisingly, it’s been called ‘a Korean Buick’) sneaks under Camry, Altima and even Avalon the way the Sonata (now with a V-6) crept below low-end Camrys and Accords. As long as it can be done profitably, it’s smart marketing. But rising overseas costs, a shaky Won and North (and South) Korea’s continually iffy politics have made domestic production a must. Hyundai’s U.S. plant, opening in 2005 in Montgomery, Ala., will have a 300,000 annual unit capacity. Add to that DaimlerChrysler, Hyundai and Mitsubishi’s (DaimlerChrysler owns 37 percent of Mitsubishi and 10 percent of Hyundai) plan to build four-cylinder engines outside of Dundee, Mich., in a plant that’s due to open in 2005. About 600,000 fourcylinder engines will be produced for vehicles sold by all three carmakers. The loftily-named “Global Engine Alliance” also involves plants in Japan and South Korea building the same engine. Total production of the powerplant could be as high as 1.5 million units worldwide. Chrysler plans to use 40 percent of the plant’s U.S. production; Hyundai and Mitsubishi will each use 30 percent of the engines.

Not just content on capturing market share from exisitng segments, Hyundai and Kia are trying to invent their own as evidenced by the Kia KCD-1 Slice (left) and Hyundai OLV (right) displayed at this year’s Detroit auto show.

With U.S. vehicle and engine production, both Korean automakers are firming up positions, raising quality levels, adding product content and cautiously moving upmarket to consolidate sales gains and keep customers at trade-in time. Bigger SUVs, minivans and hatchbacks are on the way. In 2004 or 2005, Hyundai may bring in the La Vita, a mini-minivan that could undercut Toyota Matrix and Pontiac Vibe.

Kia, meanwhile, could offer a small pickup truck by 2006 and perhaps earlier if tax changes are made. For now, the Koreans seem to be content to let the Japanese fight it out with the so-called Big 3 over big pickups, but who knows. Hyundai has a truck platform overseas that could be converted to a serious pickup if the market warranted, but that would be a high hurdle to clear. One insider hints: “In Korea, Hyundai is a company with enormous resources and capabilities. If they want to do large SUVs and full-sized pickups, they can. Toyota wasted eight years on dialed-down trucks,” he continues, “but they were worried about U.S. public opinion. They’ve invested plenty in the United States: they’re going to be in the NASCAR Craftsman Truck race series; and Nissan’s building a big pickup. Why not Hyundai and Kia?”

Kia’s Marketing Vice President, Wally Anderson, a veteran of Mercedes-Benz, likes to inject a bit of reality: “We are maintaining pricevalue relationships and making intelligent product development decisions,” he says. Both brands have 600 plus dealers nationwide.

Stand-alones are growing. “We have new programs to reward exclusivity,” says Anderson.

“Dealers are responding positively.” Although they became strange bedfellows when the Korean government insisted Hyundai take over Kia to prevent it from being bought by a foreign firm, the brands actually dovetail nicely. Hyundai’s image is more like its key Japanese competitors, albeit with beaucoup value; Hyundai’s Sellers describes Kia as “younger, edgier, even more mainstream.” Kia’s Anderson adds, “Our brand is youthful, approachable and considered a good value.” He’s very pleased with a recent J.D. Power study that showed Kia had the highest percentage of “Gen Y” buyers in the industry.

To consolidate its lead and keep up with future buyers want, Hyundai Motor America selected a six-person panel of Chicago-area residents to tour the floor of the Chicago Auto Show and provide input on new production and concept vehicles. Called the Hyundai Investigative Team (HIT), the focus group of three “Gen Y” men and three women, aged 18-25, is another Hyundai initiative that shows both Korean carmakers aren’t content to copy any longer…they’re looking to lead the way.

Pundits like to say Korean automakers have “stolen pages from the Japanese playbook.” But they seem to have stolen the whole book. Along with it, they’ve acquired topnotch talent from domestic, European and Japanese automakers. They’re not doomed to repeat history. If there’s any secret to their success, that’s a big part. It took Toyota 30 years to hit the million car mark; Honda was able to do it in 28. If O’Neill’s goal is reached, Hyundai will have hurtled that barrier in just 24 years. Kim Custer, Kia public relations, says the two companies have been challenged by their Korean management to become one of the world’s top five automakers by 2010.

Can they do it? Most experts say yes. The Koreans aren’t making the same innocent and/or start-up mistakes the Japanese automakers did. By nature, they’re not timid. These companies know what to do; the problem, as Hyundai’s Paul Sellers readily admits, “is trying to do it too fast.” One big problem remains, their products are out ahead of customer perceptions. Korean cars and SUVs are substantially better than people realize. “Now we have products that give us the ability to speak (and advertise) confidently,” says Sellers. “Our ads have to be effective, engaging, relevant and especially, they must be credible.” Kia’s Anderson adds, “the Sorento SUV is a good example of our ability to market affordable vehicles that consumers want.” He is proud that another J.D. Power study showed a visit to the Kia website increases a shopper’s likelihood to test a vehicle by a remarkable 40 percent.

Hyundai and Kia marketers insist they don’t want to see their brands become badge-engineered, like many of GM’s labels. They are sharing a new, state-of-the-art $30 million design studio in Irvine, Calif., and they’re building a $50 million joint proving ground in California City. Hyundai and Kia take advantage of economies of scale in media buying, and with suppliers. But U.S. marketing teams don’t share product plans. “We at Hyundai don’t get involved with Kia,” Sellers says. “Over in Korea, there are conversations about overseas sales and distribution. We ask for what we feel is necessary for our brand. They look at ways to share platforms if possible. It’s no different than Honda and Acura, Toyota and Lexus or Nissan and Infiniti.” Adds Kia’s Anderson, “with Hyundai and Kia, there’s much less cross-shopping than you would think.”

Kia and Hyundai both showed intriguing concept cars at this year’s Detroit auto show. The Kia KCD-1 Slice crossover vehicle resembled a stylish small minivan, but it’s equipped with clamshell doors for easier access, a choice of front-drive or AWD and a 2.7L, V-6. Hyundai’s OLV, short for Outdoor Lifestyle Vehicle, is an affordable smallish SUV, with a supercharged and intercooled four-cylinder, that features interesting space-creating elements, like a multi-part removable roof and a tailgate that can drop down to form a utility bed. The Koreans aren’t content to follow any more; they’re looking to create new segments.

Max Jamieson, CEO of Hyundai when the company began here in 1986, and now a Toyota/Hyundai dealer says, “Hyundai is the biggest thing in Korea. They have many huge businesses like steelmaking and shipbuilding. They’re powerful and they think they can’t lose. In the beginning, they didn’t understand about quality. They do now. Kia skipped the growth stages Hyundai went through.

Hyundai is where Toyota was 20 years ago.” He gives Finbarr O’Neill “a lot of credit. He had to sit on top of the sword,” Jamieson said, “with that 10-year, 100,000 mile warranty, but they’ve made it work. And one of the keys to their success is that they are able to attract a lot of top dealer organizations.”

Interestingly, as this is written, North Korea is very much in the news. And reports of disgruntled younger people in South Korea are equally disheartening. Will this affect public perception of the brands? Even worse, will it adversely influence sales? Hyundai and Kia executives are ‘concerned’ about the current Korean homeland situation, but they insist their top people overseas have heard this rhetoric before. While they take politics seriously, they believe it’s more posturing than grave substance. “We can’t control it,” says Sellers. “But many young people in South Korea are enthused about the U.S., and the South Koreans are still strong allies.”

“Our colleagues in Korea have a lower anxiety level about this. We’re watching it closely; we hope that (President) Bush finds a way to deal with it diplomatically,” Sellers says. With respect to the Korean political situation, Jamieson adds, “They (Hyundai) can control their government better than we can.” And what about the big Japanese competitors? Dave Danzer heads up strategic planning at Toyota. “We look at anybody who’s gaining share,” he says. “Hyundai and Kia are not bashful. We are taking them seriously. They’re doing a lot of nice things, like Sorento, Tiburon and Santa Fe. To somebody under 25, a Tiburon looks cool. It’s amazing just how fast they’re expanding,” he adds, “now with their own design center and proving grounds. It’s not low price alone. They’ve moved up from the $9-12,000 range to $15-22,000. Still, we haven’t seen a lot of cross-shopping.” Can Hyundai and Kia be stopped?

Probably not with directly competitive pricing, nor with seriously decontented models. The challenge for these upwardly mobile Koreans is whether they can retain their price advantage, introduce desirable new models across a broad spectrum, keep customers loyal over the long term and exceed Finbarr O’Neill’s lofty sales target. Barring an unforeseen calamity on the Korean peninsula, it’s a safe bet they’ll succeed.

Daewoo U.S. Future Uncertain

GM brings back cars but name remains in limbo.

Chevrolet General Manager Kurt Ritter introduces the Daewoo-based Chevy Aveo to the press at the 2003 Chicago Auto Show.
Korean cars aren’t all roses. Sadly for many loyal dealers with big investments, Daewoo remains a question mark. Despite the fact that its three models had virtually unmemorable names like Lanos, Leganza and Nubira, Daewoo still managed to sell 48,296 units in ’01, then slipped to half that volume in ’02, but GM pulled the plug when it bought a majority of the company last year. Lawsuits could bring Daewoo back, especially if disgruntled dealers sue because GM will soon be offering the Aveo, a Chevybadged subcompact, based on the Daewoo Kalos, with a 1.6L GMbuilt engine. They hope to sell 70,000 in 2004. And as many as 200,000 badge-engineered Daewoos will appear annually under the Suzuki nameplate. It’s patently obvious that the Kia Rio and Hyundai Accent are the targets here. The Japanese don’t sell really inexpensive cars and Saturn has hardly emerged as a Korean car fighter.

What do Chevrolet dealers think? One upstate New York retailer says he wasn’t surprised. “They’ve done it before,” he acknowledges, referring to the hapless Daewoo that was rebadged as the Pontiac Le Mans. “But it (the Aveo) will sell if it’s a good car and it’s priced competitively. We deal with a very educated public. We still sell a lot of used Prizms because people know it’s a Toyota. The biggest thing about Korean cars that hurts us,” he confides, “is being able to get a brand new car with a 100,000 mile warranty. Those early Hyundais and Kias weren’t very good cars. They had to address quality, and they did.”

Previous posts

Next posts

Tue. March 21st, 2023

Share this post