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.
The Multi-S concept car, for example, is an automobile not to be confused with anything in Hyundai's lineup -- a tall wagon, whose shape is reminiscent of the BMW X3. Hunt also is anxious to push Kia into the world of super-charged engines and more daring interiors than Hyundai is pursuing.
LIKES THE ODDS. While the Korean automakers are pressuring their rivals as they show impressive sales growth, they don't want to run all over each other's tire treads in the process. "Right now, there is a bit of Korean Incorporated feeling about the two brands," says consultant Keene. "You tend to say Hyundai and Kia like we say Lewis and Clark."
That's not the recipe for growing the two brands, though. "Right now, we both stand for great value, the best warranty in the business, and product that is still surprising people for how good and attractive it is. That's a good place to be while we work on our individual brand images," says Hunt.
Hunt and the new COO at Hyundai better not take too much time about it. Their bosses aren't known for patience.
Kiley is BusinessWeek's Marketing editor in New York
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