Hyundai rallies
The carmaker fights an image problem, but sales keep climbing
Two years ago, Jay Leno equated Hyundai automobiles with Yugos, the Communist-era rattletraps imported from Yugoslavia. "With the gas prices so high," he quipped, "most people want a car that you spend most of your life pushing anyway."
Now Hyundai is doing the pushing. With little notice, the South Korean carmaker has nosed its way back into the brutally competitive market for small and medium-size cars while changing a few rules of the road. Quality has improved, and an industry-leading 10-year/100,000-mile powertrain warranty has drawn consumers' attention. While car sales generally dipped 6 percent in May, Hyundai had record sales for the 16th consecutive month. Its market share surpassed Volkswagen's this year, and CEO Finbarr O'Neill predicts that by 2005 the firm will sell nearly 500,000 cars a year in the United States--putting it in the side-view mirror of the No. 3 Asian importer, Nissan. "Nothing concentrates the vision like the prospect of oblivion," says O'Neill.
Just four years ago, the South Korean conglomerate seemed set to pull the plug on its U.S. automotive subsidiary. Hyundai's econoboxes, popular in Korea, competed more with used cars than new ones in America. Its customers--derided by marketing experts as "captive resentfuls" because they couldn't afford better--had the worst credit in the business. U.S. sales in 1998 plunged to a paltry 90,000, barely enough to sustain the company's infrastructure.
Turnaround. O'Neill, who had been general counsel since Hyundai's U.S. entry in 1985, was named president and tasked with saving the firm. He fathered the 10-year warranty plan and hired pros from rivals such as Nissan and Honda. When David Weber, vice president of marketing, left Mitsubishi's advertising firm to join Hyundai in 1998, "All of my friends thought I was nuts," he says.
But Hyundai executives say they knew something most people didn't--the cars were getting better. The 10-year warranty got the go-ahead only after number crunchers determined quality was good enough that the firm wouldn't hemorrhage money paying for endless repairs. (It helps that the warranty is only transferable to a close family member.) Styling improved too, even if Hyundai borrowed liberally from other designs; on first glance, for instance, the hood on the midsize Sonata sedan could easily be mistaken for that of a Jaguar. And favorable exchange rates between South Korea and the United States allowed Hyundai to offer more features at lower prices than many competitors.
The improvements got buyers in the door, but Hyundai's bottom-of-the-barrel baggage remains a hurdle with customers. When Sergio Bertoncello of Bartlett, Ill., shopped for a car last summer, he wanted a Mazda Protege5 but found more features on the Hyundai Elantra for $3,000 less. Still, he refused to pay more than the dealer's invoice. "I'm not paying sticker for a car that's going to be worth half as much in six months," he says. Bertoncello ended up paying $16,000 for a fully loaded Elantra with a sunroof and "Shiftronic" clutchless shifter, and 10,000 miles later he is a satisfied customer. Aside from a rough transmission, he says, "I love it."
Hyundai still portrays itself as a struggling underdog--"We're just a little company from Korea trying to sell cars," insists Weber--but the company's inroads have stirred the industry's giants. "They're a new piece to the puzzle," admits Steve Sturm, Toyota's vice president of marketing. "We do look at them when we price and spec our models." General Motors, in a deal with Daewoo, another South Korean automaker, may sell Korean-made cars in America under a GM nameplate--a direct challenge to Hyundai's cost advantages.
Competitors worry not just about the economy-car market--where profit margins are slim--but also about entry-level buyers who might purchase more expensive models later on, once they're hooked on the brand. That's clearly what Hyundai hopes. Within three to five years it plans to add a minivan, a large SUV, and other more costly models to its lineup. And to beef up its U.S. presence, the firm will open its first U.S. plant in Alabama in 2005 and is moving some design work from Korea to Southern California near its headquarters. Competition will be fierce, but the biggest challenge, says O'Neill, may be escaping past mistakes: "We have to make it OK to have a $25,000 Hyundai in the driveway."
Reviews of Hyundai cars can be found at www.usnews.com/auto
This story appears in the June 24, 2002 print edition of U.S. News & World Report.
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