Hyundai's House of Pain

Posted by: David Kiley on October 9, 2007

2006_Hyundai_Sonata_ext_1.jpg

Hyundai is definitely a brand with growing pains.
The Korean company has taken a hard, and embarrassing step in idling its Alabama assembly plant an additional week. The truth is that the company has been parking cars on the fence at the factory all year long. That means they have been building thousands of cars at a time with no dealer orders for them.

Hyundai makes the Sonata sedan and Santa Fe crossover at the plant. The Sonata is most of the problem. A very good car, in my opinion. But the competition in the mid-sized sedan market is brutal, especially in a softening market.

My God. To get to a Sonata, you have to bypass a new Accord and Altima, as well as the freshened Camry, Ford Fusion, etc. Everybody does a pretty good job in this category (except Chrysler: see Sebring).

And as a story I did last May showed, Hyundai’s brand image just isn’t there yet—the imaginative new campaign from Goodby Silverstein notwithstanding.

Recently, Hyundai COO Steve Wilhite left the company after just a year. Hiring Wilhite last year was an indication that Korean management understood that Hyundai needed to do some serious brand spade work if their investments (see now idled plant) are going to pay off. I think Wilhite left when he realized the bar was being set higher than any mortal could reach.

Here’s the mistake. Hyundai has asked marketing to justify huge investments Hyundai has made in product and manufacturing. It should be the other way around. Your successful marketing should drive production schedules and capital investments.

The executive who understood this best was a mostly forgotten car executive named Paul Hahnemann, who led BMW AG’s sales and marketing in the 1960s. It was Hahnemann, by holding an extraordinary amount of influence at BMW, who led the company’s surge by marketing a focused brand. As the payoffs came from his plan, growth through investment in manufacturing and new product categories followed.

Hyundai has said to a succession of U.S. executives: We are setting this enormous stretch goal for sales, and spending all this money on a U.S. plant, so you had better figure out the marketing issue.
That’s like saying to your child: I have spent all this money to build you your own tennis courts, now, by God, you had better learn how to play this game. I think most people would only build the private court if the kid had demonstrated a love and great skill for the game in the first place.

Idling a plant that is so new is a huge slap in the face for the Korean company that has solved so many of its quality issues. I don't think Toyota has ever actually idled a U.S. plant.

Reader Comments

Noz

October 9, 2007 4:29 PM

Too bad, actually. Decent cars should have homes and the company is certainly doing better than with the first Elantra. Rather than park the inventory in the open and watch it rot, it would be better to 'sacrifice' it to the rental fleet sharks. This is a good way to introduce product to a doubting audience. I see no viable alternative other than exporting them--but to where? Frequent renters may well be impressed with very decent quality after having been fitted out for years with distinctly mediocre Fords, GM's cheapos, and Chrysler's duds.

Interesting that Hyundai is a HUGE organization, and that vehicles are a relatively small part of the whole as are cars and trucks with monstrous giant Mitsubishi. Sort of like stepchildren. Once again, a matter of management or more likely, the lack of it. Here in the States, US leadership is a must just as in Korea, any foreigner wanting to sell there in a big way had best have their head man Korean. This is not racism, but just being pragmatic. Too bad the various American executives have not worked out and I can think of several possible reasons why.

Noz

October 10, 2007 7:47 PM

A day later now, and no comments from anyone else re: Hyundai. What is the meaning of this? Lethargy to the Max? I rather suspect that this is the case. This makes the situation even worse, however typical of American behavior these days. We have been lulled by the 24/7 bombardment by the main-stream media into some kind of super-negative coma. And might I add that the Leftists have achieved their goal? Preach hate and distrust long enough and the mentally-challenged/greatly under-educated and often down-right stupid Crat majority will take it as gospel according to their leader, St. Hillary of the Husband with the bent equipment. this, not to mention no personal discipline nor sense of profound shame.

SteveCarr

October 11, 2007 3:45 AM

Koreans are very anti-American and the Hyundai not a very good car.

Nobel

October 11, 2007 8:23 PM

Don't forget the fact that Hyundai launched the U.S. manufacturing and R&D design facilities in Alabama and L.A. solely because they wanted to avoid "stiff import taxes" on pickups while reducing shipping costs; the US government imposes a "25 percent" import duty on pickup trucks.

The Hyundai Motor Corp. is expected to start manufacturing "pickup trucks" at the Alabama facility before or right after its sister Kia complete building $1.2 billion auto plant in West Point, Ga. in 2009.

Bob

October 11, 2007 11:24 PM

I have read in the news recently that auto manufacturers are charging rental car agencies a lot more money these days to lease vehicles. For instance renting a car with say 25-30k miles on it with the check engine light on will become a common experience. Maybe Hyundai can strike a deal with Hertz and Enterprise to move some of those cars from the factory lots. Maybe once renters try the cars, they will have more confidence in buying a Hyundai.

Dr Jayanth G Paraki

October 12, 2007 3:23 AM

This is my experience with a Hyundai Accent diesel car i bought and sold last year at Bangalore. The sales executive was unusually pushy in delivering the car after i had booked it.

I realise now he coerced me into buying it. The brake system kept failing (red lights on while i was driving). Within a span of six months the brake system was fiddled with no less than 3 times.

When i asked the dealer to take back the vehicle and give me a replacement he refused. I told him if this was America i would have had instant service.

Too bad to know late in the day that the problem is with the top. When the whole of the world is investing in Bangalore and rest of India Hyundai Corporation has a laid back attitude.

Ernesto Vilaplana

October 12, 2007 9:08 AM

Let's move the inventory !!! Let them know you (introduce yourself).

With a fine quality like the Sonata, let the people "test drive" (own) and know your Sonata. Get to the public (market), and let them have 2 Sonata's for the price of 11/2. It will be less painful in financial terms and good road to get a piece of the action.

Act soon.

D. Keyes

October 12, 2007 11:05 AM

You are right, there are too many "good" cars(older familiar brands) available today, that have been signifitly improved, that the average person will buy.
Hyundai must be more than "good", they must fine a way to be different.
They need more than a look alike vehicle. Advanced styling and new options, are still available .

Dave R.

October 14, 2007 8:02 AM

I agree w/Noz. It would be better to sacrifice the cars to rental fleets and get exposure to the general public who have been deluged for years with the likes of Dodge stratus, Chev Cobalts, and the like. Hyundai is certainly getting some respect in the marketplace but it's up to them to keep the consumer on the hook.

Andrew NYC

October 16, 2007 9:08 AM

It's a shame that they invested in so much inventory, and expected that US consumers to be educated towards quality and longevity over cost; the cost is still the key focus with US consumers; if it looks like a car... Hyundai made another mistake in attempting to compete prematurely in the Toyota (and even the Lexus market).
Let's say one is considering a Hyundai, it still takes a lot of research to find a recently enrolled dealer that treats the customer appropriately. Hynudaia is still truly burdened with lot of the old, stale and jaded dealerships that they first sold through during their launch days. This is not at all in line with their new way of doing business. However, first impressions still count, and I wouldn't buy a bottle of washer fluid of some of their existing dealers.
Recently though, I was given a new, top of the range loaner Santa Fe at my Lexus dealer (the owners also own a new Hynundai dealership).
Even during the last two years (my wife and I own an '06 Santa Fe as well, which is superb) Hyundai have continued to invest in continued improvements, and have done an amazing job on build quality, comfort, reliability etc, especially since they licensed Mercedes paint, safety and transmission knowledge a few years ago.
There were so many extra's, and the drive and road handling was excellent, even compared to my RX4ooh! Unfortunately, though it's a lot of car, it's still a Santa Fe, and at $25K+/- it takes the enlightened, the brave or the already loyal to take the Hyundai plunge.
Interestingly enough though, those who have done so during these last few years have never looked at another brand. Their reliability and endless warranties, together with some dealers with excellent service facilities make it a great choice over the stale US brands that have ripped us off for so many decades, having taken advantage of our patriotic purchasing behaviors, and now expect us to believe their BS.
The good news is that, despite their clear strategic error, this is just a teething problem, and Hynudai are here to stay. If Americans are willing to look at the false economics American brands offer, they'll invest in a long term, worry free experience, as many already are beginning to enjoy!

Noz

October 23, 2007 7:16 PM

Interesting comments thus far. thanks for the support Dave R. And Dr. Paraki, I am sorry your car was such a dud, and the salesperson as well. May I suggest that you consider the purchase a HONDA next time around. I can just about guarantee your satisfaction. I use as a reference not just my own experience since 1976, but those of others as tabulated in Consumer Reports Magazine in both the Annual Buyer's Guide (in time for the buying frenzy that is our pagan holidays) and the April issue.

And as to Andrew NYC, you are correct, at least in my thinking. I believe Hyundai has moved far too fast, driven by a new generation of Koreans who are well educated and aggressive beyond belief. But they need 'aging' just as does a good beef steak. Investing in time should be a priority with the company now, costly in the short run, but priceless in the longer run. Trust takes time to establish. All too often Korean cars are sold to the same kind of folks who went for the sub-prime mortgages, not the sharpest golfballs in the bag.

In thinking further in this vain, one has to hand it to Toyota (or SHOULD hand it) because of their having moved slowly but very deliberately for a number of years now, decades if one is counting far enough back to the Chrysler Airflow look-alike. This is no 'flash in the pan' outfit, they began with looms and are still weaving some world-class fabrics. then there is the pre-fab home business, and not the cheapo junk we produce here in Arkansas, etc. Nor is HONDA an 'up-start', however much younger, post-WWII.

Kathy

November 9, 2007 3:21 PM

I have owned a Hyundai Sonata for three years. In that time I have had no problems with this car. It was about 8,000. dollars cheaper that an accord. I am sorry to say that they changed the design it was the reason I bought it. I believe more than any thing it is peer pressure that stops people from buying cars that do not have the right public image. When people laugh about the car I drive I laugh all the way to the bank.

BITTER

January 11, 2008 8:57 PM

Hyundai's cars have improved so much. They seem nestled between the Japanese and the Yanks. A notch or two below the Japanese, but several notches above most American cars.

Sing Metahr

June 3, 2008 8:21 AM

Noz, what Steve Carr posted below is true. Research the May 2008 WSJ article that states why Koreans have an anti-America sentiment (story about Koreans protesting American beef)....it is no secret nor is it a racist ploy. It is in fact the truth.

George

July 10, 2008 5:44 PM

For all of you hyundai bashers out there,Hyundai beat Honda, Toyota, and Nissan in a road comparison test by a major car magizine. I think there is a lot of snobbery out there It's like the commercial said "Try It Youl Like it".
If you like paying more for equal or better Quality Go ahead!!!

steve

October 14, 2008 10:20 AM

80% of Hyundai's Alabama employees are black, when the population in Alabama is only 25% black. Hyundai pays $24 an hour, about double the average Alabamian working salary. The reason they have a racists hiring policy is because they don't form unions.

Post a comment

 

About

Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

BW Mall - Sponsored Links

Buy a link now!