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In Depth March 6, 2008, 5:00PM EST

My Way or the Highway at Hyundai

(page 2 of 3)

U.S. executives have expressed skepticism about luxury-line ambitions Sean McCabe

The problem is that the companies keep booting out American talent. And many of the American executives who do stay find parent Hyundai Motor's corporate culture to be suffocating. According to several current and former managers, Hyundai Chairman Chung Mong Koo, Kia's Ahn, and other top executives run the companies in a far more authoritarian style than do most American CEOs. The critics say his team micromanages details, rarely listens to advice from local managers, and displays little tolerance for disagreement. "It's a very feudal approach to management," says Bob Martin, a former sales executive who left Hyundai in 2005 to become a consultant at CarLab, a Santa Ana (Calif.) consulting firm. "There's a king, he rules, and everyone curries his favor. It's very militaristic."

"PUSHING ALL THE TIME"

While Chung's top-down management style might rub some Americans the wrong way, his long-term track record in the U.S. is impressive. Under his leadership, Hyundai has nearly doubled sales in the country since 2000, to 467,000 cars last year. Kia has posted almost identical growth.

Chung, who was convicted of embezzlement in Korea last year but had his prison sentence suspended, has won praise for creating a highly disciplined company. When quality complaints started to plague Hyundai during the 1990s, he ordered engineers to attack the problem. By 2004, Hyundai had soared up the rankings in quality surveys. Unlike Detroit's Big Three, Hyundai and Kia have fewer management layers to hold up decisions. "I can see where Americans would feel uncomfortable," says Alice Amsden, a professor of political economy at the Massachusetts Institute of Technology who has written books about Korea and other developing Asian economies. "American management is used to a different style. But Hyundai deserves a lot of credit."

Both Hyundai and Kia, speaking through representatives at their American units, said that all of the American managers who have left the companies in recent years were treated fairly. Even some of the executives who have departed praise the companies' management culture. "Being aggressive doesn't make them bad," says Robert Cosmai, who was CEO of Hyundai's American unit for two years before getting fired in January, 2006.

Boldness is part of Hyundai Motor's DNA. Like many of Korea's early corporate patriarchs, founder Chung Ju Yung had a simple strategy: Build factories first, worry about sales later. Starting with a small construction company in 1947, he moved into autos, shipbuilding, and other industries. Hyundai became one of the most successful Korean chaebols, family-controlled conglomerates with close ties to the government. But it was broken up into several pieces in the late 1990s in the wake of the Asian financial crisis. Last year, the global revenues of Hyundai and Kia grew 7%, to $63.5billion.

Chung Ju Yung's heirs continue to run Hyundai Motor, and his business philosophy still prevails. In America, the two companies often establish sales targets based on what their auto plants can produce—a persistent source of tension with local managers. Several past executives say that Hyundai and Kia have set unhealthily aggressive sales goals that are causing inventory to pile up. Hyundai has about 32,000 Sonata sedans parked in lots around its Montgomery (Ala.) plant with no orders from dealers. "The production-oriented style of pushing all the time won't work anymore," says Kim Ki Chan, professor of auto economics at Catholic University of Korea.

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