A Hard Road for Hyundai and Kia

[FISH]

FEBRUARY 9, 2006
Autos
By David Kiley

http://www.businessweek.com/autos/co...208_647410.htm

The hot Korean automakers are aiming to challenge the Japanese in the U.S. But it will require lifting their game.

Hyundai Motor America and Kia Motors America clearly have Detroit and their Japanese rivals looking over their shoulders. The Korean automakers are offering a proliferating number of new products, increasing quality, and attracting new customers, especially the young buyers every company covets.

But confronting the Korean companies as each introduces new models at this week's Chicago Auto Show, is whether they can transcend their brand reputations, so closely linked to low prices, and stabilize their American management (see BW Online, 2/8/06, "They Keep on Truckin' in Chicago").

Hyundai, which is showing its first minivan this week, the Entourage, in mid-January fired Bob Cosmai, its top American manager. Cosmai had guided a successful sales run for Hyundai as its national sales director from 1998 to 2004, before taking over as U.S. chief executive in 2004. Cosmai is said by industry sources to have clashed with Korean managers over his management style, and over not falling in line with dictates from Korea about future products. Hyundai spokesman Chris Hosford said that the company simply wanted to streamline decision-making in its North American operations.

Cosmai was replaced by Ok Suk Koh, who has worked in the U.S. for 12 years in Hyundai-owned companies. The company says it's not planning to hire an American CEO, though it's looking for an American chief operating officer.

OVER THE LONG HAUL? Kia, which is showcasing a concept crossover SUV, the Multi-S, had a similar falling out with its American boss, CEO Peter Butterfield, last fall. Butterfield was replaced immediately with J.H. Lee, while former Volkswagen U.S. chief Len Hunt joined as COO..

While the Koreans have momentum in the U.S. market (see BW Online, 1/05/06, "Non-U.S. Carmakers on the Rise in 2005"), a question remains concerning whether they can achieve the same sort of year to year, model-to-model consistency and stability that have marked the ascent of Japanese companies like Toyota (TM) and Nissan (NSANY).

"They [the Koreans] are top-down when it comes to management, and they are more determined than they are patient," says Jim Sanfilippo, executive vice-president at AMCI, an auto-industry consultancy. But when it comes to succeeding over the long term in the U.S., says Sanfilippo, "The sign of a real global player is when you can trust another culture to run the company in their market."

"THEY AREN'T PATIENT." Hyundai saw an 8.7% sales increase in the U.S. last year. But its U.S. sales have grown from 164,000 in 1999 to 455,012 last year on the strength of popular designs like the Santa Fe SUV and, more recently, the Tucson subcompact SUV, as well as an improved reputation for quality. "Hyundai has become a force in the U.S. to the point where they are forcing both the Japanese and U.S. companies to respond to them," says independent marketing consultant Dennis Keene.

Hyundai and Kia models priced under $15,000, for example, are grabbing first-time car buyers and forcing rivals to reenter the econo-car category -- where they can't make a profit because their costs are higher than Hyundai's (see BW Online, 1/10/06, "Suddenly Revved About Small Cars"). Sales and profit are so strong at Hyundai, that the company has acknowledged it's planning a premium brand similar to Honda's (HMC) Acura, as well as testing the $30,000 price level with a Hyundai-branded vehicle.

Some analysts, however, think Hyundai is rushing up-market. "Like I said, they aren't patient," says AMCI's Sanfilippo (see BW, 7/18/05, "Hyundai Takes a Hard Curve Into Swank").

MINIVAN PLAY. Hyundai's chief executive officer, Chung Mong Koo, a member of the company's founding family, has announced that Hyundai intends to be one of the top five automakers in the world by 2010, up from its current rank of eight. By then, the automaker aims to be selling 1 million vehicles annually in the U.S. (see BW Online, 1/5/05, "Hyundai Goes Hybrid").

The Hyundai Entourage minivan fills a category in which Hyundai has been absent. Hyundai believes it needs to become a player in this area in order to be considered a full-line automaker. It wasn't hard for Hyundai to come up with the Entourage. Hyundai and Kia are both controlled by the same Korean parent company and share resources, but are managed separately. Kia already had a minivan, the Sedona, and so Hyundai made a few changes to it to create some differentiation for its brand.

Think about the way General Motors (GM) markets the same SUV at Chevrolet, GMC, and Buick, and you get the idea. A well-equipped 2007 Entourage will be priced at $23,795, more than $1,500 less than Honda's base-price minivan, the Odyssey LX. But it's also priced right on top of the new Kia Sedona.

NOT EXACTLY TWINS. Kia's sales rose 2.1% in the U.S. last year, to 275,851, and are up from just 134,000 as recently as 1999. A midsized SUV, the Sorrento and the Rio entry-level car have all proved popular, especially with young and lower-income buyers. Plus, Kia's all-new Sportage SUV is a hot seller. "I wish I had the Sportage to sell when I was at Volkswagen," says Kia's Hunt. (See BW Online, 12/28/05, "2005 Kia Sportage".)

While it's early days for Hunt, he says he is making no substantive changes to the plan he inherited. "We recognize the need to not only enhance and take our brand to the next level, but remain distinct from Hyundai," he says. That means new models that lean toward sporty design and more performance-oriented engines than Hyundai's offerings in its models.

FULL Article at link above

[Bravada]

The problem is that Hyundai/Kia already have almost as many models as Toyota, but with much less overall sales. That means a lot of models end half-baked and some clearly fail (Remember Hyundai Trajet or Matrix? Probably don't!). They are on the same "forward run" as Daewoo, perhaps they have a better base, but if they trip, they might be dead.

[tgagneguam]

While the Koreans have momentum in the U.S. market (see BW Online, 1/05/06, "Non-U.S. Carmakers on the Rise in 2005"), a question remains concerning whether they can achieve the same sort of year to year, model-to-model consistency and stability that have marked the ascent of Japanese companies like Toyota (TM) and Nissan (NSANY).

I like the first part of this statement in which consistency is addressed. The press and consumers have generalized quality successes of the Sonata and applied it across the board to all of Hyundai's. I don't think it's fair (or true). Hyundai seems to need to do just as much work in that respect as Detroit.

The second part, in which Nissan is praised for consistency, is something I also take issue with; it's simply not true, particularly considering at the turn of the century global/US share was down, and the Company was close to bankruptcy. But, it seems par for the course for some journalists to make such statements.

Of course, the Toyota comparison is quite fair.

[Mr. Burns]

i think one think that will come back and bite hyundai is their tendancy to be overconfident upon releasing a new vehicle. I think there was much too hype and positive speculation regarding the sonata when it came out.

[CrunkedRL]

I think Hyundai need to center more of their attention on building quality vehicles instead of becoming a volume leader. The word that I still hear that is quite synonomous with Hyundai's reputation is "lemon". Although their products have improved some they still have a long way to go.

[VibenPontiac]

Originally Posted by tgagneguam

The second part, in which Nissan is praised for consistency, is something I also take issue with; it's simply not true, particularly considering at the turn of the century global/US share was down, and the Company was close to bankruptcy. But, it seems par for the course for some journalists to make such statements.

I did a double take on that too. Nissan are 11 places BELOW the national average, 25th OVERALL, in JD Power's 2005 Dependibility Study, 5 spots BELOW Hyundai. They were slightly better in 2000 at 19th and above the national average. It seems that the only thing consistant about Nissan's quality is that they don't belong in the same sentence as Toyota, Hyundai, or 20 or so other auto brands.

[JVal14]

Originally Posted by Mr. Burns

i think one think that will come back and bite hyundai is their tendancy to be overconfident upon releasing a new vehicle. I think there was much too hype and positive speculation regarding the sonata when it came out.

The Sonata was hyped more than Hyundai usually does, but that's what they need to do, especially in the cut-throat mid-size sedan segment. One of Hyundai's (and Kia's) biggest obstacles is name recognition; lots of people just don't even consider Korean brands when they're looking for a new car. And the Sonata has gotten good reviews, so there's a good excuse for them to toot their own horn.

[Whirling_Dervish]

Originally Posted by Mr. Burns

i think one think that will come back and bite hyundai is their tendancy to be overconfident upon releasing a new vehicle. I think there was much too hype and positive speculation regarding the sonata when it came out.

The Sonata and Azera deserve the hype. They elevated the brand.

The new RWD push will be more telling though. The Tiburon replacement should be a landmark moment in time for Hyundai.

[Michael_S]

Originally Posted by VibenPontiac

I did a double take on that too. Nissan are 11 places BELOW the national average, 25th OVERALL, in JD Power's 2005 Dependibility Study, 5 spots BELOW Hyundai. They were slightly better in 2000 at 19th and above the national average. It seems that the only thing consistant about Nissan's quality is that they don't belong in the same sentence as Toyota, Hyundai, or 20 or so other auto brands.

Hyundai, from what I understand, hasn't had any real reliability problems in a while. I think their real image problem is from using interior materials and design that appear really cheap. The new Sonata and Azera look to be a huge improvement in that regard.

[kenman923]

I think that Hyundai should work to improve their quality. They have come a long way, but they still could use some work. Afterward, they could introduce all the models they want.

[importedtuna]

I don't get the whole HyunKIA thing. To me they seem like they compete in the same market, and now Hyundai wants to have its own luxury brand.... As it stands the 2 brands are about as different as Ford and Mercury at best, with KIA just slightly "cheaper" and younger than Hyundai.

Why not just keep KIA where it is and take Hyundai upscale?

[Whirling_Dervish]

Originally Posted by importedtuna

I don't get the whole HyunKIA thing. To me they seem like they compete in the same market, and now Hyundai wants to have its own luxury brand.... As it stands the 2 brands are about as different as Ford and Mercury at best, with KIA just slightly "cheaper" and younger than Hyundai.

Why not just keep KIA where it is and take Hyundai upscale?

Its like this:

Kia < Hyundai < ?Luxury Brand?

[GM-10]

Originally Posted by Whirling_Dervish

Its like this:

Kia < Hyundai < ?Luxury Brand?

No--it goes like this..

Wax Paper <Aluminum Foil < Kia < Hyundai < Luxury Brand < Walmart Tricycle

[Geotpf]

Originally Posted by VibenPontiac

I did a double take on that too. Nissan are 11 places BELOW the national average, 25th OVERALL, in JD Power's 2005 Dependibility Study, 5 spots BELOW Hyundai. They were slightly better in 2000 at 19th and above the national average. It seems that the only thing consistant about Nissan's quality is that they don't belong in the same sentence as Toyota, Hyundai, or 20 or so other auto brands.

Thier horrible Mississippi plant is killing thier quality. Consumer Reports gave thier worst marks to four of the five vehicles made at that plant. They called it the worst auto plant in North America.

http://www.post-gazette.com/pg/06009/633531.stm

[Whirling_Dervish]

Originally Posted by GM-10

No--it goes like this..

Wax Paper <Aluminum Foil < Kia < Hyundai < Luxury Brand < Walmart Tricycle

hahaha......

Similar things were said about Toyota.