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"Driving is Believing" - The Resurgence of Korea's #1 Auto Maker
    Managing Editor

The Setting
1998 was not a particularly good year for Hyundai - just ask Mr. Finbarr O'Neil. Hyundai's Corporate Lawyer at the time who was asked to perform duties as CEO to try and turn the ailing carmaker around. The perception of Hyundai vehicles - which was the same for all Korean-built vehicles at the time - was that they were cheap, unreliable means of basic transportation that you bought only if you had no other choice. For the most part, this stereotype was not completely unfounded either. Sub-par quality had been Hyundai's bag for awhile, what with models like the Pony and Excel dotting its past, most Americans were left with a bad taste in their mouth whenever the name "Hyundai" was mentioned. The company became the butt of many a joke by late-night comics and consumers alike. It was an unfortunate reality, but the company decided in 1998, having sold just over 90,000 vehicles total in the United States (The Honda Accord alone sold more than 413,000 units in the same year) that something had to be done to reverse this ill-fated trend. Mr. O'Neil took office and he had a pretty challenging job ahead of him. And what a job he did. Hyundai recently tied Honda for The J.D. Power and Associates Initial Quality Survey (IQS) and was only 1 point behind Toyota. This, combined with 400,000 total vehicle sales in 2003 represents a huge turnaround for Hyundai in America.

Process Improvements
One of the first things Mr. O'Neil did was to instill confidence in the buying public by instituting an industry-best warranty. The now famous 10 year / 100,000 mile warranty has been copied by many manufacturers, but Hyundai will always be able to lay claim as the originator. The second step was to actually improve the quality of the vehicles to go along with the warranty. Hyundai used to believe that with a lower price, higher quality wasn't a necessity. Obviously, this frame of mind didn't serve them too well within the United States, so specific improvements had to be made, including a re-design of electronic systems using new suppliers. This was a big problem area with previous Hyundai's and was the source of many complaints by consumers, so it was essential that this area was focused and improved upon. All vehicles in general were tweaked to provide smoother, quieter rides with fewer squeaks and rattles. Transmissions were improved as well as engine offerings. Essential aspects for selling within the United States, like fit and finish and overall comfort had to be given special attention as well. Once these quality problems were fixed, the next step was to start offering a more diverse, exciting lineup that catered more to American desires and tastes.

Turning Point
With the completion of a $25 Million design studio in California, Hyundai made a commitment to designing vehicles tailored to Americans. The first vehicle to come out of that new studio was the Santa Fe SUV in 2000. This was a significant event in Hyundai's history as it was Hyundai's first design done by Americans for Americans, whereas every other Hyundai vehicle up until then had been designed in Korea and built primarily for Koreans (and exported to America, almost as an afterthought, as with the XG350). The Santa Fe was the first vehicle to really emphasize Hyundai's devotion to improving its vehicle lineup and offering more choices tailored to the American consumer. Sales were (and still are) brisk for the compact SUV and consumers started to look at Hyundai differently. Additionally, the Santa Fe has been noted in the industry for having high levels of build quality.

After the Santa Fe was introduced, Hyundai came to market with a freshly redesigned bread-and-butter Sonata mid-size sedan and introduced the also re-designed Tiburon Sports Coupe, which was now available with a V6 for the first time. Both were shining examples of value and Hyundai's newfound determination to produce exciting, fresh vehicles that had quality built in and could compete favorably with Japanese offerings. At Mr. O'Neil's request, Hyundai imported the European-market-only Elantra GT without detuning the excellent suspension, and watched sales of the Elantra accelerate further. It would also leave the competition in the dust when it came to the factory warranty. The vehicle lineup was completed with Hyundai's attempt at a premium sedan - the XG300 (a year after launched, it was given a larger engine and a name change to XG350, followed by a stretched-version, XG350L). This premium sedan offered features of much more expensive vehicles, but undercut their prices severely. Things were definitely looking up at Hyundai.

Coming to America
Things were looking up so much, in fact, that Hyundai decided they needed to build another factory to support demand. What followed was the ground breaking of a $1 Billion factory in Alabama, due to open in 2005. The current factories in Korea are reaching their maximum output as we speak, and this new factory will be able to supply 300,000 additional units to the United States - mostly next generation Sonatas and Santa Fe's. However, this new factory will be so flexible, that up to four models can be built on a single production line. The Alabama factory will also be Hyundai's first factory in the United States and will be an example of the lean production techniques that have served Japanese stalwarts, such as Toyota and Honda, very well over the years.

Looking to the Future
Having Purchased then-bankrupt Kia Motors in 1998, Hyundai now commands roughly three-quarters of its domestic market (Korea, a protected market where roughly 92% of the market is controlled by Korean manufacturers). This gives Hyundai two-times its previous development and design power, allowing it to share platforms and split costs. This all contributes to greater efficiency and thus, greater profit. The Hyundai-Kia conglomerate shows no signs of slowing down, and with sales numbers climbing every year, we see more and more concept vehicles showing up. From the hot Hyundai HCD-8 (Hyundai Concept Design #8) Sports Car to the aggressive Kia KCV-4 (Kia Concept Vehicle #4) Mojave Pickup Truck, each concept hints at the company becoming more aggressive every year. The possibility that they might introduce a full-size truck into the U.S. market to go head to head with established American brands is amazing when you consider the very same company was struggling to sell compact cars just six years prior. Hyundai's HCD-8 is a veritable rolling platform of innovation for Hyundai, from the AWD drivetrain and adjustable air suspension to the headlights comprised solely of LED's. Technological development like this is not a sign of a company resting on its laurels. In fact, this type of development and research is necessary if a car company wishes to continue growing and keep its product line fresh and exciting.

The Final Review
It's not all rosy on the Hyundai ranch, however. The company still has a few obstacles to tackle to win over the amount of consumers they want in the United States. For one, resale value needs to improve to the point where leasing programs start to make sense. Leasing programs tend to attract more consumers, tempting them with the promise of lower monthly payments and a lower overall cash outlay than financing. However, since lease payments are directly related to the amount a car depreciates within the lease term, Hyundai and Kia vehicles have never been good candidates due to the fact they don't hold their value well. Unfortunately, years of poor quality have contributed to this characteristic. Hyundai has obviously taken the first steps to reversing this stigma, but it will take many years of consistent, quality production to repair all the damage done. Along with the hellacious depreciation comes the credibility of the company's products, as both are pretty much directly related. Most Americans still think of Korean-built vehicles as tinny, shoddily-built modes of transportation. Unfortunately, much like the accelerated depreciation, this unflattering public perception is due to previous years mired in quality problems and will also take a good amount of time to change. As things are now, though, Hyundai is enjoying wonderful sales success, surpassing even Volkswagen's market share in the United States. Hyundai has also achieved one more important statistic: a greater owner loyalty rate than even Toyota (52% vs. 50%). Hyundai has also struck up a working relationship with DaimlerChrysler (DCX now owns about 10% of Hyundai Motors), in which Hyundai supplies its own four-cylinder engines for use in DCX products. This relationship will also no doubt help Hyundai continually improve their products by having open access to DCX designers and engineers. If Hyundai is persistent enough, and continues to improve and expand their product line as they have been doing, there is no doubt they will have continued success in the United States.


Oh No! No More O'Neil!


Finbarr is gone, recruited to save Mitsubishi as he's saved Hyundai. So far, he's using the same method, extended warranties, but is adding in free scheduled maintenance for an initial period. While he is not the sole reason that Hyundai is doing well here, he is responsible for either the ideas or the execution of the ideas that have put them back on the success path. Keep in mind, before they had their terrible 1998, they were selling over 200,000 cars in the US. The problem is, they sold solely on price. They finally saw the cost of doing that in 1998, and decided to start changing the situation. Sure, they are still the cheapest cars in each of the competitive sets (at least most of the time), but they've brought much more to the table now. Instead of being cheap, they're a good value. That's key. One comment, though. I think that Hyundai customer loyalty, at least to a large degree, is driven by their value pricing. People who cannot afford a car other than a Hyundai will most likely continue to be in that financial situation. They do not have the luxury of moving to a Toyota and paying $3,000 more for a car. And, one last thought. With the progress Hyundai has made in moving up in JD Powers studies, and the downward trend in Mercedes performance, perhaps Hyundai can teach DCX a thing or two. Isn't that an odd proposition? Certainly, not one anyone would have imagined 10 or even 5 years ago. Good job, Finbarr. Good luck with Mitsu, you'll need it.