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Management Q&A

Staying Power

Hyundai President and CEO Robert Cosmei has weathered the storm and leads the Korean automaker to future success.

Hyundai is on a roll. The company surprised the industry last summer, posting very impressive numbers in the J.D. Power Initial Quality Study (IQS), tying for second place overall with Honda with the Sonata pulling down the J.D. Power IQS Award for having the highest initial quality in the Entry Midsize Car category. Global sales have pushed Hyundai to seventh place, ahead of both Honda and Nissan. With a new manufacturing plant opening in Alabama and a Technology Center under construction in Superior Township, Mich., Hyundai is poised to expand its North American presence.

 Hyundai Motor America President and CEO Robert Cosmei introduces the 2006 Sonata to the international press.
Cosmei announced the 24/7 plan at this year’s North American International Auto Show. Hyundai will launch seven new vehicles in the next 24 months, starting with the Tucson in the fall of 2004, followed by the new North American-built Sonata this spring. By summer’s end there will be a new Accent, a brand new XG and a new Santa Fe. An all-new minivan will launch in November 2005 and a new Elantra will debut in mid-2006. Automotive Industries sat down with Cosmei at this year’s auto show to discuss Hyundai’s future.

Q. I have heard one automotive analyst refer to Hyundai as “The new Toyota.” Do you want to comment on that?

A. I have to tell you I’ve heard that before. It’s flattering because they’re the number one car company in the world. And some people said that they see a lot of similarities between both companies. Of course Toyota and Honda have been here a lot longer. Our 20th anniversary is coming up for us and those 20 years have been rather tumultuous. We’ve been up and out of the gate flying and then had a pretty rough 10-year period, but the good news is that we could have turned tail and just left the country, but Chairman Chung, being really involved, wanted to get it back on speed and really did it with abandon. I think the big thing about it from our company’s perspective is that we know from whence we came and we know we have issues. The quality issue is something that we really want to focus on. We know we’re going to have some new products and have a long warranty, but quality has to come back. And I think that’s the biggest part of the turnaround right now.

Q. Talking about quality, Hyundai has made great strides in J.D. Power’s Initial Quality Study. Was there a deliberate push on the part of Hyundai to drive the J.D. Power numbers?

A. It really started about three years ago, and like I said, I keep talking about Chairman Chung, but he’s the driving force. He’s got lifts down at world headquarters and he’s underneath those lifts looking at the product. He’s kind of a service guy himself and I think he figured out pretty fast that if he’s going to spend all this money on R&D in bringing a product to marketplace, that we’ve got to make sure that the product that we’re selling right now is not as good as but even better.

Q. Can Hyundai do better?

A. We have to — absolutely have to. To me and speaking for the company, that was just the first step. I look at the great companies like Honda and Toyota, it’s part of their landscape. They’ve been doing this for like 20 years. And that’s something that we have to be able to do on a consistent basis. And it’s really going to be a challenge for us because we’ve got a lot of new products. It’s great if you’ve got a lot of new products but that’s when you experience the bump in the road. That’s really going to be testing our mettle over the next few years. But it’s something we’re well aware of and I think we have some processes in place to do the best job we can.

Q. Are there any new segments that you’re looking at like large truck or SUV?

A. We’re going into minivan. We are looking at a larger SUV above the second generation Santa Fe, probably more on the Explorer size. People ask us about trucks all the time. As an emerging brand we always look at a lot of different segments. There are no immediate plans in the medium- or heavy- duty truck segment … well obviously not heavy duty — full-size pickup truck. But would I like to see something like that? Yeah. Would our dealers? Yes, absolutely. And will we end up by studying it? Sure, we’ll end up by studying it but there are no immediate plans. Large SUV, pickup truck and probably the last thing would be crossover vehicles, like the Pacifica. And I would just say short term that’s a bet. And I don’t think anything below Accent at this juncture right now.

Q. If Hyundai was to do a luxury car or luxury SUV, would you stay with the same type of plan and bring it into a volume luxury segment as a lower-priced luxury vehicle?

A. Obviously you have to take a look at what’s in that particular category, what it competes against, and you have to put the option content that people in that segment are used to seeing. But as for us entering into a luxury market, we’re not really going to do that in the near term. Maybe not even for the rest of this decade. But we’ll continue to revisit those opportunities and that segment.

Q. Are there any plans to do a V-8 in North America?

A. Not in the near term. We’ve looked at some V-8 applications. The company built some pretty nice engines.

Q. Would you consider a V-8 for the large SUV segment ?

A. I think it’s probably a little too early to say, but I guess if the question is, do we know how to build V-8s, the answer is yes. (Hyundai sells an Equus sedan in Korea with a 4.5L V-8. The same engine is used in Mitsubishi’s luxury car sold in Japan.) And I think if you look at the current V-6 and the new V-6, you’ll see the growth and sophistication of the engine design.

Q. How are you going to benefit by being able to build cars in North America?

A. Just the timing as far as part of the short supply chain. When the order goes into Korea, it’s produced, and then shipped. It takes 30 days to get from Korea to the East Coast — it’s almost 100, 120 days. But now we build cars in March and start shipping them out in the early part of April, and that really is helpful. Our parent company has worked very hard to build our sales but Hyundai sells cars in 190 countries, so we have to compete against some of the other guys.

With the type of volumes that we’re looking at right now, getting the cars quicker to market — part of our order-to-delivery strategy, is that when you can produce something on a local basis, when we get to within a week of production, if we have to make some changes in trends or whatever the case might be, we can do it. And that’s going to help us as far as our inventory position with the dealers. I would rather have cars in inventory that they can sell.

Sometimes [Korea will] batch the cars and you’ll have a bunch of black cars going through or white cars or whatever and I think we can end up by really changing the mix and have it a more market-driven type of program. So shorter time getting here to the marketplace and being able to build products in the right models, transmissions, options and colors.

Q. Will Alabama ease up some of the production constraints you’ve experienced in the past?

A. That’ll help us quite a bit to say the least. Because we all battle for worldwide production and it happens a little bit. When we were growing from 1999 through 2003, we had some challenges but they broke their backside in Korea to try to give us the products to grow this market. [Alabama] will really alleviate most of the problems. At least on those two models. And obviously, we’ll be able to flex and build some more Sonatas and less Santa Fes or more Santa Fes and fewer Sonatas. You have to be able to do that.

Q. Are there any plans to export vehicles from Alabama?

A. Right now there are no immediate plans but certainly that could possibly happen down the road. I know Honda is already doing it.

Q. Is Alabama set up to build several different vehicles on the same line?

A. The goal is to run as few models as possible out of a plant because you get the best quality then. But the plant can build four different models, without any modifications to the current plant.

Q. It was designed then to be able to do that?

A. Absolutely. And believe me, if they decided they needed to build more than that, they know how to do that. They don’t think they’ll need to, but when they built the plant, they said, “Let’s make sure that we build this plant in a way that if we needed to even add more models we could do that.”

Q. You’ve been one of the few car companies that have been able to grab conquest sales from the Japanese. What’s the Hyundai secret?

A. I think our demographic profile is starting to match up a lot closer to the Japanese.

We keep everything pretty much standard and we offer the customer a lot of content, a lot of safety features, all for a great price. I think that the styling cues and the quality improvement has come about and I think that’s starting to resonate with the buying public. We match up better against the Japanese competitors than we do against the domestics.

Q. I have read or have heard that one of Hyundai’s cost advantages is that they manufacturing in low cost areas. Is that true?

A. A lot of people think that the wages are much lower, but the benefit and salary package in Korea is almost equal to most of the assembly plants here in the United States — the transplants. India and China and maybe Turkey may be a little bit different, but they’re not supplying parts or whatever. If you look in terms of Korean manufacturing and what the hourly workers are making versus Alabama, it’s pretty close.

Q. Will there be any future synergies between Hyundai and Kia?

A. No, I don’t think so. With the complex ownership on this side, we’re going to have to continue to migrate the brand separately. In fact, in the design center in Irvine [Calif.], we have a separate design head for Hyundai and one for Kia. They just work on Kia projects or Hyundai products. We have to do that because it’s important for us. Right now a lot of the products kind of cross over. It’s a little muddled right now. But you’ll see some products down the road — [Kia] Optima will be one — that’ll be very different from the Sonata. When Kia was going through their bankruptcy, Hyundai had to help out with the R&D, so you saw a lot of the same family looks and we all want to change that.

Q. So instead of a coming together it’s more of a pushing apart.

A. Yeah. And I think brand-wise, we’re going to be more refined and confident — we’re going to be more youthful and sporty. And I think you’ll start seeing some product changes over the new few years.

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