South Korean automaker Hyundai Motor Co. is taking a regional approach to combat slumping sales as it works to complete a global restructuring plan next year.
Two weeks ago, it announced a massive overhaul of U.S. operations based in Fountain Valley, and reorganization of Europe and India operations. The changes took effect this week and are meant to give the regional headquarters more autonomy and control over sales and production.
Hyundai said in a statement that “the regional groups, in close collaboration with corporate headquarters, will play a hub role to lead continuous innovation within each market and advance Hyundai’s global business operations to the next level.”
Executive Vice President Yong-woo Le now heads Hyundai Motor North America less than a year after the automaker named Kyung Soo Lee president and chief executive.
Similar changes were also announced for Hyundai affiliate Kia Motors Corp. Executive Vice President Byung-kwon Rhim is now head of U.S. operations for Irvine-based Kia Motors North America—five months after Seung-Kyu Yoon was named chief executive.
It’s unclear if either executive will remain in his post. Hyundai spokesman Jim Trainor said it’s too early in the process to know about changes that will be made to operations and whether the company’s leadership count will grow or diminish. Kia didn’t respond to a request for comment.
Hyundai has hit more speed bumps this year as sales continue to decelerate from the U.S. peak in 2016 of 775,005. Its U.S. market share topped 5% in 2011 and is now below 4%. The automaker recalled some Sonata sedans, its third-best selling brand here behind Elantra and Santa Fe.
Analysts consider the shakeup a concerted effort to bolster sales in its third-biggest market after China and South Korea.
Margarethe Wiersema, a professor at the University of California-Irvine’s business school, said it’s an organizational issue that big companies often struggle with, citing Walmart Inc.’s poor performance in international markets, including Latin America.
“Trying to run your business in different geographical markets from one country has its disadvantages, [and] the central headquarters is not going to be as sensitive to what’s going on in each market.”
Rough Ride
This year, Hyundai (OTC US: HYMTF) reported its lowest annual earnings in seven years, U.S. sales dropping 13.4% from 2016 to 664,961 units. Kia sold 589,668 units in the U.S., down 8.9% from 2016.
It recalled nearly 155,000 of its 2011 Sonatas in February over concerns the air bags might not inflate during a crash. The following month, the National Highway Traffic Safety Administration announced it would investigate Hyundai and Kia over the air bag failures, affecting an estimated 425,000 cars.
The setbacks closely followed a fierce battle between parent company Hyundai Motor Group—which has more than 50 affiliates and is South Korea’s second-largest conglomerate after Samsung Electronics Co.—and New York-based activist hedge fund Elliott Management Corp. over plans to merge car-parts company Hyundai Mobis Co. with shipping and logistics affiliate Hyundai Glovis Co.
Hyundai Motor’s parent started taking steps last year to simplify its ownership structure after investors and South Korean politicians started calling for the reform of family-controlled conglomerates after the bribery scandal involving Samsung Electronics. Vice Chairman Jay Lee and ousted President Geun-hye Park.
Changing up its U.S. operations cuts bureaucracy, allowing each region to be responsible for every aspect of the business, “ranging from product planning, marketing, sales and manufacturing,” which would “optimize more effective decision-making systems,” the companies said.
Top leaders will no longer have to seek approval from headquarters in Seoul before making key decisions, meaning output and shipments can be adjusted to market demand, and even product design can be tailored to a U.S. consumer’s taste.
Hyundai Motor America, which is now Hyundai Motor North America, encompasses Hyundai Motor Manufacturing Alabama and its three sales units—Hyundai Motor America, Hyundai Motor Canada and Hyundai Motor Mexico.
Kia, now known as Kia Motors North America, will also oversee Georgia and Mexico manufacturing hubs, as well as its three sales units in the U.S., Canada and Mexico.
UCI business school professor Gerardo Okhuysen said the reorganization will lead to faster decision making, which is “important when a company is in a very competitive environment.”
“You can imagine that a competitor might put together an attractive financing offer to consumers to sell more cars, and autonomy would allow the company to quickly respond with its own incentive offer,” Okhuysen said.
New Day
A number of competitors have introduced a similar setup, such as Toyota Motor Corp., Honda Motor Co., Nissan Motor Co. and recently scandal-plagued Volkswagen Group.
Toyota made sweeping changes in 2013 after its image suffered in 2009 and 2010 for some models’ unintended acceleration. It was criticized for being slow to react to the crisis, in part because of its management structure, which kept it from reacting quicker, and for lacking vehicle design innovation.
Wiersema said there’s no telling why Hyundai would decide to adjust its regional headquarters now but said it likely realized how drastically different the U.S. auto market is compared to the rest of the world.
“There has been some significant changes in the market,” she said. “The percentage of SUVs is higher here than anywhere else in the world—about 45%. The push for self-driving vehicles is much higher here than anywhere else in the world.”
She added that without autonomy at the regional level, the corporate office may not realize those trends are “as important and not push it in product design.”
The biggest consumer shift here has been from sedans to SUVs and crossovers—the biggest gap in Hyundai’s lineup.
But the automaker plans to launch new SUV and crossover models, and coupled with its reorganization, that could turn the tide.
The company announced last month that its 2019 Santa Fe, formerly called Santa Fe Sport, will start at $25,500 and include more safety and technology features when it hits dealerships this year. It’s about $550 more than its predecessor.
It will also release a three-row, seven-passenger version of its crossover next year, renamed Santa Fe XL, and a third unnamed eight-passenger SUV.
Hyundai reported 489 employees last June at its Western region headquarters in Fountain Valley and other local operations, ranking No. 2 behind Irvine-based Karma Automotive LLC among OC-based carmakers. The Hyundai figure includes workers at its design and technical center and at Hyundai Capital America in Irvine.
