Hyundai: The George Steinbrenner Of Autos
Jerry Flint, 05.08.07, 6:00 AM ET
If you wanted one word to describe Hyundai, the Korean carmaker, I would suggest "impatient." Or maybe "impetuous," or "impulsive."
The world's sixth-largest automaker does not show patience in building its business. It is drive, drive, drive, all the time. Win at any cost.
Hyundai's growth in the U.S. has been spectacular. Its quality image has moved from terrible to good. Business doubled here in five years. Many automakers would be happy with a fraction of that increase, but not Hyundai. Last year, it fired the American head of the company. Rumor had it that back in Korea, they wanted more gains.
Then later last year, sales in the tough U.S. market stalled at 455,000. Rather than coast for a bit, Hyundai is just pushing harder to try to rack up more wins.
It recently fired its long-time advertising agency and replaced it with Goodby, Silverstein & Partners, which used to represent General Motors' (nyse: GM - news - people ) Saturn division. One estimate pegs this as a $300 million account, with Hyundai dealers spending a similar amount on local advertising.
The speed at which the company produces models is amazing--the Azera sedan, the Entourage minivan and the made-in-the-U.S. Sonata sedan. Hyundai pumps out new stuff much faster than Detroit and even the Japanese. It has promised a diesel in a couple of years, and you can bet it will be coming up with hybrids, plug-ins, fuel cells and whatever it takes.
Hyundai is continuing its relentless onslaught of new models, the latest being its three-passenger row Veracruz "crossover" sport utility vehicle, a model that is a likely candidate for the upcoming diesel. The company is also trying to move up-market. A luxurious rear-drive sedan is coming next year. The car will offer a V-8 engine option, probably pushing it into the $35,000 to $40,000 range, which is a leap from the $12,000 to $25,000 cars and SUVs Hyundai has been selling. The company even considered but ultimately rejected setting up a separate luxury division, like Lexus, for this new sedan.
Maybe you have seen Hyundai TV ads recently, comparing its cars to BMWs and other high rollers. Hyundai wants to get people to think of it that way, not just as a company known for building cheapie cars with lots of options as standard. I think it will take more than advertising to change such perceptions.
Nor is the company ignoring the low end. Hyundai just said it would add a five-door wagon to its low-end Elantra line early next year and market it as a small SUV.
Hyundai announced from Korea that this year the American unit would sell 550,000 cars and trucks--which, frankly, is unlikely. The Americans at Hyundai said they are shooting for 500,000 sales this year. So if they do not make the target set by the bosses overseas, will the company fire more people? Oh yeah, Hyundai wants 700,000 sales here by 2010, a 54% increase in four years.
Hyundai says that 50 of its dealers are underachievers in customer service, and it has given these laggards six months to improve their performance or face the consequences. That is tough talk considering how well state authorities protect auto dealers.
Factory capacity is another indicator of Hyundai's relentless drive. It can build 300,000 units a year at its new (but underutilized) Alabama plant, so it may add a third vehicle to keep it running full. Now Kia Motors, the sister company, which Hyundai controls in Korea, is building its first U.S. plant, in Georgia. Also in the works is Hyundai's second engine plant, in Alabama. Within a few years, the company is going to have an enormous amount of U.S. manufacturing capacity--maybe too much.
How good are Hyundais? Well, certainly better than those first cars years ago, which had a terrible reputation. I recall a Hyundai sales manager getting in front of a press conference and saying:
"We sell more cars in Cleveland than in all California. Know why?"
Then, with a big laugh, he answered himself: "Because we never sold cars in Cleveland before."
That was years ago, and Hyundai has since rebuilt its reputation with a 100,000-mile warranty to show owners that it seriously improved quality. Consumer Reports puts its "recommended" label on the Sonata sedan (made here), the Tucson small crossover SUV, the Entourage minivan and the Azera upscale sedan. Car testers often say nice things, too, but I notice that in long-term tests, after 20,000 miles more, some reports on Hyundais are not as pleasant.
Despite all the gains in quality and image, Hyundai is having a hard time moving its sales to the next level. In the first four months of 2007, it sold 143,342 vehicles, down 3.5% from the 147,013 of the year before. Sales of that Sonata sedan built in Alabama are down 31%, to 40,000.
Year Hyundai's Annual U.S. Sales
1998 90,217
1999 164,190
2000 244,391
2001 346,235
2002 375,119
2003 400,221
2004 416,615
2005 455,012
2006 455,520
Source: Automotive News
Hyundai is not doing that well in Europe either, but most Asian nameplates had a weak first quarter. In the first three months of 2007, Hyundai sold 81,196 units in Europe, a decline of 7% from 87,153 in the first quarter of 2006.
The risk to Hyundai is that in its drive to be No. 1 in the world, it will overreach. It is a mistake to underestimate the competition, fire good people who don't meet foolish sales targets set in Korea, overbuild factories in the U.S. before the market is ready to absorb such volume, and then dump cars to keep the factories going. The Koreans, including Hyundai, have made similar mistakes in the past. Hyundai survived a late 1990s meltdown, but it was close. Kia floundered and Hyundai gained control; General Motors ended up with the remnants of bankrupt Daewoo, and Renault took over Samsung.
Maybe it's time for the managers in Korea to learn the words of that song, "The Gambler."
"You've got to know when to hold them, know when to fold them, know when to walk away, know when to run."
http://www.forbes.com/columnists/2007/05/0..._0508flint.html
Jerry Flint, 05.08.07, 6:00 AM ET
If you wanted one word to describe Hyundai, the Korean carmaker, I would suggest "impatient." Or maybe "impetuous," or "impulsive."
The world's sixth-largest automaker does not show patience in building its business. It is drive, drive, drive, all the time. Win at any cost.
Hyundai's growth in the U.S. has been spectacular. Its quality image has moved from terrible to good. Business doubled here in five years. Many automakers would be happy with a fraction of that increase, but not Hyundai. Last year, it fired the American head of the company. Rumor had it that back in Korea, they wanted more gains.
Then later last year, sales in the tough U.S. market stalled at 455,000. Rather than coast for a bit, Hyundai is just pushing harder to try to rack up more wins.
It recently fired its long-time advertising agency and replaced it with Goodby, Silverstein & Partners, which used to represent General Motors' (nyse: GM - news - people ) Saturn division. One estimate pegs this as a $300 million account, with Hyundai dealers spending a similar amount on local advertising.
The speed at which the company produces models is amazing--the Azera sedan, the Entourage minivan and the made-in-the-U.S. Sonata sedan. Hyundai pumps out new stuff much faster than Detroit and even the Japanese. It has promised a diesel in a couple of years, and you can bet it will be coming up with hybrids, plug-ins, fuel cells and whatever it takes.
Hyundai is continuing its relentless onslaught of new models, the latest being its three-passenger row Veracruz "crossover" sport utility vehicle, a model that is a likely candidate for the upcoming diesel. The company is also trying to move up-market. A luxurious rear-drive sedan is coming next year. The car will offer a V-8 engine option, probably pushing it into the $35,000 to $40,000 range, which is a leap from the $12,000 to $25,000 cars and SUVs Hyundai has been selling. The company even considered but ultimately rejected setting up a separate luxury division, like Lexus, for this new sedan.
Maybe you have seen Hyundai TV ads recently, comparing its cars to BMWs and other high rollers. Hyundai wants to get people to think of it that way, not just as a company known for building cheapie cars with lots of options as standard. I think it will take more than advertising to change such perceptions.
Nor is the company ignoring the low end. Hyundai just said it would add a five-door wagon to its low-end Elantra line early next year and market it as a small SUV.
Hyundai announced from Korea that this year the American unit would sell 550,000 cars and trucks--which, frankly, is unlikely. The Americans at Hyundai said they are shooting for 500,000 sales this year. So if they do not make the target set by the bosses overseas, will the company fire more people? Oh yeah, Hyundai wants 700,000 sales here by 2010, a 54% increase in four years.
Hyundai says that 50 of its dealers are underachievers in customer service, and it has given these laggards six months to improve their performance or face the consequences. That is tough talk considering how well state authorities protect auto dealers.
Factory capacity is another indicator of Hyundai's relentless drive. It can build 300,000 units a year at its new (but underutilized) Alabama plant, so it may add a third vehicle to keep it running full. Now Kia Motors, the sister company, which Hyundai controls in Korea, is building its first U.S. plant, in Georgia. Also in the works is Hyundai's second engine plant, in Alabama. Within a few years, the company is going to have an enormous amount of U.S. manufacturing capacity--maybe too much.
How good are Hyundais? Well, certainly better than those first cars years ago, which had a terrible reputation. I recall a Hyundai sales manager getting in front of a press conference and saying:
"We sell more cars in Cleveland than in all California. Know why?"
Then, with a big laugh, he answered himself: "Because we never sold cars in Cleveland before."
That was years ago, and Hyundai has since rebuilt its reputation with a 100,000-mile warranty to show owners that it seriously improved quality. Consumer Reports puts its "recommended" label on the Sonata sedan (made here), the Tucson small crossover SUV, the Entourage minivan and the Azera upscale sedan. Car testers often say nice things, too, but I notice that in long-term tests, after 20,000 miles more, some reports on Hyundais are not as pleasant.
Despite all the gains in quality and image, Hyundai is having a hard time moving its sales to the next level. In the first four months of 2007, it sold 143,342 vehicles, down 3.5% from the 147,013 of the year before. Sales of that Sonata sedan built in Alabama are down 31%, to 40,000.
Year Hyundai's Annual U.S. Sales
1998 90,217
1999 164,190
2000 244,391
2001 346,235
2002 375,119
2003 400,221
2004 416,615
2005 455,012
2006 455,520
Source: Automotive News
Hyundai is not doing that well in Europe either, but most Asian nameplates had a weak first quarter. In the first three months of 2007, Hyundai sold 81,196 units in Europe, a decline of 7% from 87,153 in the first quarter of 2006.
The risk to Hyundai is that in its drive to be No. 1 in the world, it will overreach. It is a mistake to underestimate the competition, fire good people who don't meet foolish sales targets set in Korea, overbuild factories in the U.S. before the market is ready to absorb such volume, and then dump cars to keep the factories going. The Koreans, including Hyundai, have made similar mistakes in the past. Hyundai survived a late 1990s meltdown, but it was close. Kia floundered and Hyundai gained control; General Motors ended up with the remnants of bankrupt Daewoo, and Renault took over Samsung.
Maybe it's time for the managers in Korea to learn the words of that song, "The Gambler."
"You've got to know when to hold them, know when to fold them, know when to walk away, know when to run."
http://www.forbes.com/columnists/2007/05/0..._0508flint.html
