Automaker Hyundai Eyes U.S. Plant, Big Rivals
As if cracking the U.S. market and tackling quality concerns weren’t enough, Fountain Valley-based Hyundai Motor America is staring down a whole new set of challenges.
Gone are doubts about whether Hyundai is here to stay. It is, observers say. Now the question is whether Hyundai can keep moving up the ranks and challenge top-tier Japanese rivals and the dominant U.S. automakers.
“Anybody in the industry benchmarks themselves,” said Finbarr O’Neill, Hyundai Motor America’s chief executive. “We need to strengthen the brand. In that connection, you’d look at other brands as having attributes that we’d aspire to. There are benchmark brands such as Toyota and Honda that clearly enjoy the appreciation of the public and allow them to charge premium prices.”
The U.S. unit of South Korea’s Hyundai Motor Co. is hot. Even as industrywide sales have slipped this year, Hyundai has posted gains here.
Demand for the company’s Santa Fe sport utility vehicle has been so strong that Hyundai had to put people on a waiting list for the first time. Since introducing the Santa Fe last year, Hyundai has sold nearly 40,000 of them.
A new luxury sedan, the XG350, also has surpassed the company’s expectations, according to O’Neill.
Just a few years ago, Hyundai and “luxury” would have seemed an oxymoron.
“We had the right product at the right time,” O’Neill said. “It brought new customers to the party. It also created an image of Hyundai as being able to execute a highly competitive product.”
In October, Hyundai sold more than 34,000 vehicles in the U.S., nearly double what it sold in October 2000. Through October, Hyundai sold nearly 300,000 vehicles here, up 41% from the year-ago period.
Next year, Hyundai hopes to sell 370,000 vehicles here, a 15% increase from its 2001 target of 320,000.
Hyundai has spent the past decade “doggedly working” to overcome bad press about quality, said Marty Padgett, editor of The Car Connection, a Detroit-based online publication.
“They’ve come a long way,” Padgett said. “It probably scares the hell out of Ford, Chrysler and Nissan, because (Hyundai’s) quality ratings are going up and they’re able to deliver products less expensively.”
But with Hyundai’s gains comes added pressure, according to O’Neill.
“The best advice I’ve gotten from our dealers is don’t screw it up,” he said.
Padgett and other observers say Hyundai has earned its place among the middle ranks of automakers. But things could get tougher from here as Hyundai looks to follow in the footsteps of Toyota Motor Corp. and Honda Motor Co.
Hyundai holds a small portion of the overall auto market,2% as of October. But that is up from 1.3% last year and a scant 0.6% in 1998.
Jeff Schuster, director of North American forecasting at Troy, Mich.-based J.D. Power and Associates, puts Hyundai in the same class as Mazda Motor Corp., whose U.S. arm is based in Irvine, and Mitsubishi Motor Corp., which has its U.S. operation in Cypress.
In October, Hyundai outsold both Mazda and Mitsubishi in the U.S. and was nipping at the heels of Germany’s Volkswagen AG.
“There are certain parallels that can be drawn that (Hyundai) is at a stage right now where Toyota was several years ago,” Schuster said.
For now, Hyundai and Toyota still are miles apart. The Japanese powerhouse sold 1.5 million vehicles this year through October, or more than 10 times what Hyundai did.
O’Neill said he is realistic.
“This will not take place in a matter of a year or two, because you need to go through a full set of product cycles,” he said. “If you’re a benchmark brand like Honda or Toyota, maybe you can miss on a product. Hyundai doesn’t need to miss.”
Hyundai could be getting ready to up the stakes. The next big move could be the company’s first U.S. plant. Industry reports say Hyundai could break ground on a facility in the South as early as February. The company only will say a plant is under consideration (see related story, this page).
A definite go is a new design center in Irvine. Hyundai recently paid $8 million for 7.4 acres of land in the Irvine Spectrum to build a 90,000-square-foot, $25 million design facility.
The new digs will replace Hyundai’s center in Fountain Valley. Hyundai plans to share the Irvine site with Irvine-based Kia Motors America Inc., another subsidiary of Seoul-based Hyundai Motor (see related story, this page).
O’Neill called the design center “a commitment to the North American market.”
Having a California design center is key to measuring the “uniqueness of the taste of the North American public,” he said.
In the early years, Hyundai took its share of knocks for being out of step with the market.
“There was a serious lack of understanding on what was happening, where the market was shifting,” said Paul Eisenstein, publisher of The Car Connection. “Hyundai was initially driving on one leg and that was cost. The reality was the other leg,quality,was seriously deficient.”
The company launched in the U.S. in 1986 selling an entry-level sedan for $5,000. After an initial rush, sales plummeted as buyers balked at the perceived low quality.
O’Neill, who’s been with Hyundai Motor America since 1985 and was named chief executive in 1998, said he remembers that time well. When Hyundai came into the market, nobody knew the brand. So many “applied Asian/Japanese quality” to Hyundai, he said.
“But it didn’t deliver on the implied Japanese quality,” said O’Neill, who worked at Toyota before coming to Hyundai. “Sales suffered accordingly and image declined. We went into the ’90s with lower sales.”
After redesigning its cars and researching consumers, O’Neill said Hyundai figured out what it would take to overcome quality concerns,a 10-year warranty, which Hyundai introduced in 1998, the start of back-to-back years of sales increases.
Early marketing campaigns,designed by Bates USA West in Irvine,promoted the warranty rationally, said Mark Weinfeld, Hyundai’s senior vice president of strategic planning.
The theme was more “the cars are built so well we can offer a warranty as opposed to if it breaks we can fix it,” Weinfeld said. The warranty became the “anchor,” or the “single most compelling message” for the brand, he said.
In its latest campaign, Hyundai tries to strike the “pride of ownership” chord among owners and potential buyers, Weinfeld said.
“The intent was to get at that emotional obstacle to make people feel like this is a brand that’s desirable,” he added. “We could not have done this two years ago. We didn’t have the credibility. It would have come off hokey.”
Weinfeld said the brand has moved from “unacceptable” to “acceptable”,largely because of the warranty. But many people continue to rate Hyundai low when it comes to “a brand I can be proud to own,” he said.
“That happens to be one of the strongest drivers of purchase consideration,” he said.
Hyundai is looking to make the brand more appealing but won’t veer from pushing the warranty message, O’Neill said. The automaker, which spent about $145 million on advertising in 2000, according to New York-based Competitive Media Reporting, plans to increase spending by 10% in 2002.
“The job is never really done on getting the word out about the warranty or the product,” O’Neill said.
Meanwhile, the Hyundai Dealer Advertising Association, which spent about $93.8 million on advertising in 2000, will continue running ads featuring positive customer testimonials. O’Neill said that helps confirm the “smartness and savvy-ness” of buying a Hyundai.
“There’s an extra burden on us to cut through the clutter,” O’Neill said. “Our message absolutely has to be consistent.”
O’Neill said Hyundai also plans to continue building its dealer network. There are about 575 Hyundai dealerships in the U.S., up 23% from from 467 in 1998.
The Car Connection’s Eisenstein said he credits Hyundai with doing a better job at challenging the Japanese and U.S. automakers than some Europeans brands have. But he said he’s not ready to peg Hyundai as the next Toyota just yet.
“They can become a solid player in the second tier of international players,” he said. “They very well could do that.” n
