Hyundai is World's Fastest Growing Car CompanySEOUL, South Korea --
Toyota Motor Corp. may scare Detroit's automakers, but there's one rival out there that worries Toyota.
It's South Korea's Hyundai Motor Co. Already the fastest-growing major automaker, Hyundai says it wants to supplant Toyota as the industry's vehicle quality leader in three years.
Such a goal sounds gutsy, coming from a carmaker that was a running gag on late-night TV not so long ago. But U.S. and Japanese auto executives take Hyundai very seriously now.
"We're always looking in our rear-view mirror, and they're one that's coming up quickly," said Dennis Cuneo, senior vice president of Toyota Motor North America Inc.
In just a few years, Hyundai has emerged as the industry pace-setter, after achieving huge strides in sales and quality -- and in about half the time it took Japan's leading carmakers.
The family-run automaker, which also controls Kia Motors, has leapt from 16th in the global sales rankings in 1998 to seventh last year, just behind DaimlerChrysler AG.
In the United States, the Hyundai Kia Automotive Group is clawing sales from the Big Three after winning customers with stylish vehicles, low prices and quality assurances backed by a 10-year powertrain warranty.
Hyundai owner Mike Ruggero, a Detroit restaurant supervisor, was first attracted to the brand by its long warranty but found the design and prices hard to beat. "The cars are very stylish and look like they should be a lot more expensive than they are," he said.
Ruggero bought a Santa Fe sport utility vehicle and later traded it in for a midsize Sonata sedan. So far, his family has owned four Hyundais.
"They (Hyundai) are very aggressive in the marketplace in terms of their investment and pricing," said Paul Ballew,
General Motors Corp.'s executive director of global market and industry analysis.
Benefiting from lower production costs, Hyundai and Kia are hammering rivals in the "cheap and cheerful" small-car segments in North America and Europe.
The Seoul-based automaker also is expanding rapidly in the world's two most populous countries -- China and India.
Now, Hyundai is setting its sights higher, aiming to compete head-on with Japan's best carmakers and even planning some day to export luxury cars.
"We're tremendously confident about our future," Kim Jae Il, Hyundai senior executive vice president, said at the Seoul motor show last month.
Hyundai managers exuded self-assurance at the show, where the Hyundai and Kia brands displayed a raft of new vehicles and high-tech concepts.
In contrast with the self-effacing style of Japan's business executives, the Koreans' declarations appear bold, even cocky.
For cultural and historical reasons, they relish taking on the Japanese after having emulated them for years.
John Krafcik, vice president for product development at Hyundai Motor America, says the company's culture combines some of the finest Japanese qualities, such as discipline and focus on eliminating waste, with an earthy can-do spirit he traces to Hyundai Motor's origins as a car-repair business.
"It's this wonderful combination of the best of the Japanese layered on top of an extraordinary entrepreneurial spirit.
"There's a 'lift yourself up by your bootstraps' culture that runs through the whole company," said Krafcik, former chief truck chassis engineer at
Ford Motor Co.
Return to America
In March, Hyundai marked an important milestone when it began operating its first U.S. plant, a $1.1 billion factory in Montgomery, Ala., that will turn out the new Sonata.
The car represents a big leap for Hyundai, boasting more standard safety equipment than any model in its class, including the Chevy Malibu or Honda Accord.
Hyundai Chairman Chung Mong Koo dispatched 60 Korean engineers to Montgomery to troubleshoot and ensure a smooth startup.
Company executives still recall Hyundai's dismal record in the United States in the early 1990s, when the shoddy Excel compact flopped in the market. Hyundai closed its only North American plant, in Quebec.
But the company's dogged effort to improve quality paid off. Last year, the Korean automaker jolted rivals when the Hyundai nameplate beat the Toyota brand in J.D. Power and Associates' U.S. initial quality rankings.
Overall, Toyota scored higher than Hyundai in the survey of new car owners because of the Lexus brand's sterling rating. Toyota's long-term reliability scores also are better than Hyundai's.
But the influential Consumer Reports magazine rated the Sonata the most reliable car in 2004.
To counter the threat from Hyundai in small-car segments, Japanese and U.S. automakers are bringing in models built in Asia, such as the Chevrolet Aveo, produced by GM Daewoo Auto & Technology Co.
But as Hyundai improves quality and adds new models, rivals find themselves under mounting pressure from the Korean carmaker.
Toyota CEO Fujio Cho recently referred to the Korean automaker as a "formidable" rival.
At 67, Chairman and CEO Chung is Hyundai's driving force. He is the eldest surviving son of Hyundai Group founder Chung Ju Yung, who appointed him to run the carmaker in 1998 when he broke up the auto, shipbuilding and construction conglomerate, under pressure from the Korean government.
The current chairman "is a singularly determined man," said Finbarr O'Neill, who headed Hyundai's North American operations from 1998 to 2003 and is now CEO of the software firm Reynolds and Reynolds Co.
"He never accepted that the company couldn't do this or that better. He's very hands-on."
Snubbing Toyota, Daimler
After pushing his executives to boost sales and forge into new markets, Chung has renewed his drive for top quality.
"Our goal of being No. 5 in worldwide sales has been supplanted by the goal to be No. 1 in quality," said Lee Hyun Soon, senior executive vice president in charge of powertrain, at the motor show. "We're obsessed with quality now."
Hyundai may have cut its teeth on U.S. and Japanese technology, but it isn't taking lessons from anyone these days.
Earlier this year, Toyota executives proposed mutual plant visits to gauge each other's capabilities. They invited Hyundai to visit a Japanese plant rarely seen by outsiders in exchange for permission to visit Hyundai's gigantic Ulsan plant in Korea. But the Koreans snubbed them.
Hyundai also ended its equity relationship with DaimlerChrysler AG last year, saying it did not need the partnership.
German executives at DaimlerChrysler, which was forging an Asian alliance with Hyundai and Mitsubishi Motors Corp., recalled tense moments when the Koreans grew sharp with Japanese colleagues. But ultimately, the relationship between DaimlerChrysler and Mitsubishi soured, too.
Hyundai executives say they are wary of cooperative agreements because they don't see the benefit.
"Korean labor costs are lower than German, American or Japanese labor costs. So if we work together on projects, our costs go up," Lee said.
Koreans have a well-deserved reputation for working hard. At Hyundai's Asan factory, the blueprint for the Alabama plant, workers put in 50-hour weeks, including 10 paid overtime.
Engineers and designers at the Hyundai-Kia Namyang Research & Development Center routinely clock 12-hour days.
"Korean engineers work very long hours, and they're very results-oriented," Lee said.
Hyundai now boasts its own world-class technology. It builds diesel engines for cars sold in Europe, it is developing its gas-electric hybrid and fuel-cell vehicles and is studying plans to introduce two hybrids to the U.S. market in late 2007.
Its Asan plant -- on South Korea's western coastline -- is one of the world's most highly automated car factories. In the stamping and welding sections where car bodies are built, robots outnumber workers 3 to 2.
Most of the aisles are deserted and all the sounds come from machines -- the rhythmic thumping of the stamping equipment, musical tune-alarms and the whirring of automated carts transporting panels.
In one section, lasers silently scan car body panels to measure inconsistencies in the gaps and alignments that might not be visible to the naked eye.
Further along, in the final assembly section, the front and corners of the painted cars moving down the line are covered in blue plastic to prevent nicks and scratches.
In most factories, some of the finished cars are road-tested. At Asan, every car that comes off the line is taken for a spin on a two-mile track out back.
Driving upmarket
The drive for bulletproof quality is crucial for the Hyundai nameplate, which the company is repositioning above Kia to distinguish the two brands.
Kia will focus on young buyers with sporty but inexpensive vehicles, while Hyundai will stress elegance and comfort in its models.
Hyundai already sells a luxury car in Korea, the Equus, which costs up to $70,000 for a fully loaded model.
At the Seoul car show, Hyundai displayed the $30,000 Grandeur, a premium sedan that it will launch later this year in the United States as the Azera.
But the company's drive to push the Hyundai brand upmarket carries a risk. Germany's Volkswagen AG pursued a similar strategy in the late 1990s to the detriment of its core models. Automakers risk losing old customers without gaining enough new ones.
"The challenge for the Hyundai brand is to recognize where it is," O'Neill said. "It's still not at the Japanese Tier One level. You cannot get overconfident with the brand."
Hyundai has tempered its urge to launch luxury cars in the U.S. market, saying it's too soon.
"Once the Hyundai brand has matured enough, maybe we'll have more premium cars and even a premium brand," said Hyundai marketing director Brandon Yea.
"It's a question of timing, but the time is not right now."
Last year, Hyundai Motor earned $1.7 billion on sales of $26.3 billion. But these are tough times, and the automaker faces strong headwinds: a rise in the Korean currency, the won, against the dollar; weak demand in its home market; and poor financial results at Kia. Hyundai acquired a controlling stake in Kia in 1998.
Merrill Lynch has a "sell" recommendation on Kia stock, citing its losses in the domestic market, although it assigns Hyundai shares a neutral rating.
Chung Mong Koo appointed his son, Chung Eui Son, as co-CEO of Kia this year, to help bolster the sister brand's performance.
But long-term pressures are driving Hyundai to secure a slot in the industry's Big Leagues, alongside Japan's top carmakers.
The giant next door
When Hyundai looks in its own rear-view mirror, it can see Chinese aspirants in the far distance.
"Hyundai had to do this," said Michael Robinet, vice president of global forecasting at auto consulting firm CSM Worldwide in Farmington Hills. "If they didn't move up the chain, they would go down the road as price leaders. Others would come in, and they would be sitting ducks."
China's automakers are just getting started, but some of them have ambitious export plans. Chery Automobile Co., which now ships no-frills vehicles to Third World countries such as Bangladesh, wants to make cars for sale in the United States in two years.
China's largest carmaker, Shanghai Automotive Industry Corp., bought a controlling stake in Korea's debt-saddled Ssangyong Motor Co. this year to tap its expertise in developing light trucks.
Hyundai lords a big cost advantage over Japanese and U.S. automakers, but its labor costs are much higher than those in China. Chinese autoworkers earn as little as $3,000 a year, while a seasoned Korean line worker takes home more than 10 times that much -- and Koreans exercise their right to strike.
Hyundai executives know from their own experience how quickly newcomers can learn -- and even overtake older carmakers they once emulated.
Hyundai Motor started out in 1967 making cars and engines using parts, designs and technology licensed from Ford and then Mitsubishi.
Speaking of Hyundai's early tutors, "I wonder if they'll regret giving this much help to Hyundai," Krafcik said.
Detroit News Staff Writer Ed Garsten contributed to this report. You can reach Christine Tierney at (313) 222-1463 or
ctierney@detnews.com.