Hyundai has a lot riding on this car. Execs are betting that the new Sonata -- to be launched in Korea on Sept. 1, and in the U.S. and elsewhere next spring -- will challenge Toyota's Camry, Honda's Accord, and Ford's (F
) Taurus for the hearts and wallets of U.S. drivers, and help catapult Hyundai into the ranks of the world's top carmakers. They aim to sell as many as 180,000 Sonatas a year at prices likely to top $22,000. "Our goal is not to make a one-off hit," says Choi Jong Min, the car's chief designer. "This will spearhead our efforts to boost our brand image and end Hyundai's reputation as a discount marque.""A DOABLE TARGET"
Hyundai hopes the new Sonata and a small SUV called the Tucson will be the first in a string of winners. They had better be. The company hasn't launched a new vehicle in the past two years, and its U.S. dealers are eager for that product drought to end. Over the next three years, Hyundai and its subsidiary, Kia Motors Corp., will introduce a dozen new models. The company wants to double group sales, to 5.5 million vehicles annually, by 2010, with much of that growth coming from new plants in the U.S., China, India, and Europe. Hyundai's aim: to leapfrog PSA Peugeot Citroën (PEUGY
) and Renault to rival Volkswagen as the fifth-largest carmaker on earth, up from No. 8 today. "Hyundai is gearing up to become a truly global player," says Lee Jae Wan, Hyundai's marketing chief.
It has been six years since late-night TV host Jay Leno compared a Hyundai to a luge sled (the car "has no room, you have to push it to get going, and it only goes downhill"). Rivals aren't laughing now. In 2000, Chairman Chung Mong Koo promised that Hyundai would rival Toyota in quality, reliability, and customer satisfaction. This year, he delivered. On Apr. 28, J.D. Power & Associates Inc.'s survey of initial quality -- measuring the number of complaints in the first 90 days of ownership -- showed Hyundai in a virtual dead heat with its Japanese rivals. Hyundai and Honda Motor Co. (HMC
) tied for No. 2 with 102 problems per 100 cars, just behind Toyota Motor Corp.'s 101. Hyundai's "momentum is significant," says John C. Humphrey, chief of international operations at J.D. Power. He says Hyundai's sales goal is "ambitious, but it's a doable target."
That quality improvement is showing up in Hyundai's results. Last year profits jumped 21%, to $1.51 billion, even as sales fell 5.2%, to $21.52 billion, because of a slump in Korean consumer spending. This year, Hyundai is on track to see profit growth of 23% as sales rise nearly 11%, according to Daewoo Securities Co. And in the first seven months of 2004, exports soared 36.5%, easily making up for a further 17.6% fall in domestic sales. "We're poised to have a record year," says marketing chief Lee.
Once the new Sonata hits the road, Hyundai wants to revamp its entire lineup. By 2008, Hyundai will replace its four other existing models, including the Elantra and XG 350 sedans, and add two new SUVs and a minivan. Kia, meanwhile, will revamp its Rio and Optima sedans, the Sportage SUV, and the Sedona minivan. That's one of the best pipelines in the industry, which should keep customers coming into the showrooms -- and allow Hyundai to bump prices up toward Toyota's levels. And each new Hyundai model will follow the Sonata's lead in styling, abandoning the exaggerated, muscular curves seen in the hood and door panels of its Santa Fe SUV for a simpler, more contoured look. "They'll all have common Hyundai DNA," says brand strategist Kim Young Il.
Above all, the Sonata needs to charm U.S. drivers. The new model -- the first vehicle to be built at a $1 billion plant in Montgomery, Ala. -- is vital in meeting the company's U.S. sales targets. Hyundai wants to boost American sales by 20% from last year's level by 2006, to 500,000 units, and double that by 2010. To get a sense of what Americans want, Hyundai spent years surveying U.S. consumer tastes. Its sleeker silhouette stems from a "concept clinic" in San Diego four years ago. More than 200 people rated Sonata rivals such as the Camry, Accord, and Taurus on everything from looks to power and pricing. The participants especially liked the Audi A6, which became a key benchmark for the new Sonata. "Internally, NF is known as an affordable A6," says a Hyundai director.
The real benchmark, though, is the Camry; indeed, many Hyundai execs refer to the Sonata as their "Camry fighter." Hyundai has long tried to close the quality gap with the top-selling sedan in the U.S., and the car served as the reference point for the NF's design, cabin size, and handling. "We made sure NF performs better or at least matches Camry's performance in every aspect," says marketing chief Lee.
One key aspect is the motor. Engineers at Hyundai's Power Train R&D Center in Namyang, south of Seoul, tore apart the engines of more than 70 midsize sedans. That exercise helped them design a 3.3-liter V-6 and a 2.4-liter, four-cylinder engine, each of which they say cranks out more horsepower and torque than any engine in its class -- though they decline to give data on performance. And to make sure Sonata drivers get more oomph than those piloting Camrys, Hyundai plans to equip most of its U.S.-bound Sonatas with the new V-6. The price hasn't been finalized, but the V-6 is expected to cost about the same as a four-cylinder Camry. Offering more power for less dough could be a big selling point, since 80% of Camry buyers settle for the cheaper four-cylinders.NEW MIND-SET
Indeed, Hyundai is hoping its investments in engines will distinguish the company from its competitors. Until 2000, Sonatas sold in the U.S. came with engines based on technology developed by Mitsubishi Motors Corp. In a reversal of fortune, though, both Mitsubishi and DaimlerChrysler (DCX
) have adopted the new four-cylinder Hyundai engine for their small and midsize cars -- and have paid Hyundai $57 million in royalties for it. "It's like a student outsmarting his teacher," gloats Lee Hyun Soon, Hyundai's engine development chief.
To keep that level of innovation flowing, Chairman Chung has pulled out the stops on research and development. Since 1999, Chung has spent some $5 billion -- or 4.7% of revenues -- developing new models and drive trains. And in 2002, Chung built a $69 million pilot plant at the Namyang R&D complex where R&D specialists work with production engineers to pinpoint any potential glitches in production.
Thanks to Hyundai's progress, Chung, 66, is gaining respect. When he was appointed to the top job five years ago, many in and out of the company were skeptical of his potential as a leader. Chung had spent 24 years running Hyundai's after-sales service but didn't appear to have a vision for the company as a whole. Service, though, turned out to be a good training ground for identifying customer needs -- especially the importance of quality. "The biggest change under his leadership is the change of mind-set," says Oh Sung Hwan, deputy general manager for production control at Hyundai's main plant in Ulsan, on Korea's east coast. "We now try to make cars from a customer's point of view, not from an engineer's."
That means a relentless focus on quality. Chung has boosted the quality team eightfold, to 865 people, in the past five years. And this team has complete power to stop manufacturing at any stage once it detects a problem. Last September, for instance, production of Kia's new Cerato compact was halted for two weeks after the team spotted loose interior fittings. More than 700 finished Ceratos had to be refitted, and every engineer on the Cerato line had to undergo retraining before production resumed. "Our mission is to deliver cars superior to Camry and Accord," says quality control chief Suh Byung Kee.
Chung's challenge is to continue the momentum he has built up. One issue is whether Hyundai can crack the big leagues without offering pickup trucks and monster SUVs that are so popular in the U.S. "It's hard not to have a product in the largest segment of the market," acknowledges Ed Bradley, vice-president of Hyundai's U.S. sales unit. And despite the initial quality gains, Hyundai has yet to prove its cars are durable. In the most recent J.D. Power long-term dependability study -- which measured customer satisfaction with 2001 models -- Hyundai placed 14th among 17 auto makers, with 375 problems per 100 vehicles. Top-ranked Toyota, by contrast, had just 207, and the industry average was 269. And Kia still ranks near the bottom on both initial quality and dependability. Hyundai executives counter that their dependability numbers will rise, since the results of Chung's quality push won't be fully seen for a couple of years. As for Kia, they say the models currently being rated were developed before Hyundai took the company over, and that the new models in the pipeline will fare much better.
For now, though, the future looks bright. If the new Sonata proves a hit, Hyundai will likely see its U.S. sales continue to climb. If Hyundai can then consolidate its quality gains and keep churning out new models, the big auto makers in Europe, the U.S., and Japan would do well to keep an eye in the rearview mirror for this Korean speedster. By Moon Ihlwan in Asan, South Korea, with Chester Dawson in New York