Bloomberg News

Hyundai Rattles Volkswagen in Europe After Winning in U.S.: Cars

January 24, 2012

Jan. 23 (Bloomberg) -- Volkswagen AG threw a party for 120 guests at New York’s Museum of Modern Art in early January to mark a breakthrough year in the U.S. for the German automaker. The celebration proved to be premature.

Two days later in Detroit, Hyundai Motor Co.’s Elantra beat the VW Passat to win the North American Car of the Year award, underscoring the company’s status as a Volkswagen killjoy. The Seoul, South Korea-based manufacturer and its Kia Motors Corp. affiliate want to repeat their U.S. success, where they outsell the German company more than three to one, on VW’s home turf.

“It’s very important for Hyundai to be successful” in Europe, said Allan Rushforth, Hyundai’s chief operating officer for the region. “Europe is a top priority because it affects how the company is perceived elsewhere.”

The carmaker, noted for low prices, is targeting Europe as the region’s debt crisis makes consumers cost-conscious. Hyundai’s mix of value and reliability helped it more than double global deliveries since 2004, beating VW’s 60 percent growth, according to researcher IHS Automotive. Hyundai is now adding European styling -- nimbler-looking than its U.S. cars -- confronting VW as the German company seeks to surpass General Motors Co. as the world’s largest automaker.

“Hyundai is one of VW’s most serious challengers,” said 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.”

Production Boost

The Hyundai brand plans 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 as well as the i30 compact and i40 wagon, which have been styled specifically for the region, said Rushforth. The company added a third shift at its factory in the Czech Republic last summer to expand production.

Sister brand Kia targets 350,000 deliveries this year, a 19 percent gain from 2011, thanks to new versions of the Optima sedan and Cee’d compact, said Paul Philpott, the brand’s chief operating officer for Europe. Kia will add a third shift at its factory in Slovakia in the first quarter to boost output of the Sportage sport-utility vehicle and new Cee’d.

“There’s potential for Kia to become a major mainstream player in Europe,” with sales of more than 500,000 vehicles, said Philpott in a Jan. 20 telephone interview from the company’s regional headquarters near Frankfurt, adding that “2011 was our take-off year and 2012 will be our acceleration year.”

Praise From the Top

VW Chief Executive Officer Martin Winterkorn effectively anointed Hyundai as a top rival after he was shown on video praising the adjustable steering column on an i30 compact during the Frankfurt Motor Show in September.

“Nothing rattles,” Winterkorn said to his entourage in a video posted on YouTube, which was viewed more than 1.6 million times. “Why can they do it? BMW can’t. We can’t.” The i30 starts at 15,490 euros ($19,990) in Germany, 10 percent less than VW’s best-selling Golf.

Hyundai plans to keep up the pressure by investing a record 14.1 trillion won ($12.4 billion) to upgrade plants and develop vehicle technology, the company said Dec. 29.

VW isn’t sitting still. The Wolfsburg-based manufacturer has budgeted 62.4 billion euros to invest in factories and new models over the next five years.

CEO Winterkorn told the company’s top 2,000 managers at a meeting in Dresden in December that he intends to position Volkswagen to withstand growing competition as it pursues the auto industry’s profit and technology lead.

“It’s become increasingly clear that whoever’s at the front has a lot of opponents,” Winterkorn said in a speech from the event, the text of which was obtained by Bloomberg. “Our competitors are attacking Volkswagen all over the world.”

That pressure became clear on Jan. 9, when the Elantra beat the Passat and the Ford Focus in the voting of a jury of 50 automotive journalists from the U.S. and Canada for the independent award of best new car in North America. VW wanted to cap off 2011 with the award after opening a factory in Tennessee and reporting its highest annual U.S. sales since 2002.

“Hyundai offers compelling design at an affordable price-- a win-win for most consumers,” Jessica Caldwell, a senior analyst at U.S. auto website Edmunds.com. “Brand exposure has long been the problem for Hyundai, but that has certainly eased” with the help of higher sales, ads during the Super Bowl and the sponsorship of the World Cup soccer tournament.

Still, buyers on the U.K. auto website Drivethedeal.com paid 82 percent more for VWs, like the 24,175-euro Tiguan SUV, in the fourth quarter compared with Hyundai vehicles, said Richard Sanders, the site’s managing director.

“People just seem to trust VW more” when buying higher- end cars, said Sanders. “But that’s changing. There’s nothing wrong with Hyundai product anymore.”

--Editors: Chad Thomas, John Brecher

To contact the reporter on this story: Chris Reiter in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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