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Big car companies spend millions of dollars on ads to burnish their brands. But Hyundai Motor received one of its biggest boosts from an unlikely source: competitor Volkswagen (VOW). In a video shot during the Frankfurt Motor Show in September, VW Chief Executive Officer Martin Winterkorn is seen praising the adjustable steering column on a Hyundai i30 compact, effectively anointing Hyundai as a top rival. “Nothing rattles,” Winterkorn said to his entourage in the amateur video posted on YouTube (GOOG). “Why can they do it? BMW can’t. We can’t.” The video has been viewed more than 1.6 million times.
Winterkorn’s praising a small hatchback that starts at €15,490 ($19,990) in Germany—10 percent less than VW’s best-selling Golf—says a lot about the aggressiveness of Hyundai’s strategy. The Seoul-based company has made its name selling quality cars that are priced less than the competition. Hyundai has used that combination successfully in the U.S., where it and Kia Motors, the sister brand it has controlled since 1998, have leapt to the No. 2 spot among foreign carmakers. In the U.S. last year, Hyundai and Kia sold 1.13 million vehicles—more than triple Volkswagen’s 324,401.
Now the carmaker is targeting Europe just as the region’s debt crisis is making consumers more cost-conscious. Over the past five years, Hyundai has opened and expanded plants on the Continent, tailored its product line to match European tastes, and reached out to European buyers by sponsoring the World Cup and enlisting German soccer icon Jürgen Klinsmann as a brand ambassador. “It’s very important for Hyundai to be successful” in Europe, says Allan Rushforth, Hyundai’s chief operating officer for the region. “Europe is a top priority because it affects how the company is perceived elsewhere.”
Hyundai’s mix of value, reliability, and longer-than-average new-car warranties has helped it more than double global deliveries since 2004, beating VW’s 60 percent growth, according to researcher IHS Automotive (IHS). Hyundai and Kia increased their total European market share last year to 5.1 percent from 4.5 percent, putting them ahead of Toyota Motor (TM), Daimler’s (DAI) Mercedes-Benz, and Volvo, and making the Korean brands bigger in the region than the combined share of Honda Motor (HMC), Mazda Motor, Mitsubishi Motors, and Suzuki Motor, which together controlled just 4.2 percent of the European car market. Volkswagen dominates the region with a 23.3 percent share, including 12.4 percent for the VW brand.
“Hyundai is one of VW’s most serious challengers,” says Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “The mix of good value, quality, and design is a solid basis, and they’ve been getting more innovative every year.”
VW’s larger scale—from its high-volume namesake line to such luxury brands as Audi and Bugatti—give it plenty of advantages. The Hyundai brands’ ambitions will add to the ongoing pressure on other players in Europe’s crowded automotive market, including Renault (RNO), Peugeot (UG), Fiat (F), and General Motors’ (GM) Opel unit.
Rushforth says Hyundai managers plan to increase European sales by about 25 percent, to 500,000 cars, by 2013, boosted by the i40 sedan and the three-door Veloster sports coupe along with the i30 compact and i40 wagon, which have been styled specifically for the region. Unlike the U.S., where Hyundai offers family sedans like its Sonata, its Euro offerings are all hatchbacks, crossovers, or wagons—popular vehicle styles there.
Hyundai last summer added a third shift at its three-year-old factory in the Czech Republic to expand production by 100,000 vehicles annually. It also builds cars for European sale at a plant in Turkey, where it expanded capacity by 67 percent in 2007, to 100,000 vehicles annually. And in 2011 it opened a 150,000-vehicle-a-year factory in Russia.
Sister brand Kia hopes to make 350,000 deliveries this year in Europe, up 19 percent from 2011, thanks to new versions of its Optima sedan and Cee’d compact, says Paul Philpott, chief operating officer at Kia Motors Europe. Kia plans to add a third shift at its Slovakian factory to boost output of the Sportage sport-utility vehicle and the Cee’d. “There’s potential for Kia to become a major mainstream player in Europe,” with sales of more than 500,000 vehicles, says Philpott. “2011 was our takeoff year and 2012 will be our acceleration year.”
VW Chief Winterkorn expects more competition on his turf. “It’s become increasingly clear that whoever’s at the front has a lot of opponents,” he said in a speech to the company’s top 2,000 managers in December. “Our competitors are attacking Volkswagen all over the world.”
Long known primarily as a maker of smaller cars, Hyundai is broadening its product line. The sporty but quirky 2012 Veloster coupe—it has one door on the driver’s side, but two on the passenger side for easier back-seat entry—is intended to boost the brand’s design cred. Hyundai is also adding more upscale cars in Europe such as the €42,290 ix55 SUV (known as the Veracruz in the U.S.).
Yet industry veterans think it will take a while before most Europeans feel comfortable spending big on a Hyundai. “People just seem to trust VW more” when buying higher-end cars, says Richard Sanders, managing director of Drivethedeal.com, an auto discount website in Britain where dealers unload inventory. “But that’s changing.”
The bottom line: Hyundai is growing fast in Europe. The market share of its Hyundai and Kia brands rose to 5.1 percent in 2011 from 4.5 percent a year earlier.