HYUNDAI : CLUNKY AND DULL, BUT A BIG HIT
If Rodney Dangerfield were a car, he’d be a Hyundai Excel.
The little car from Korea gets no respect from automotive critics, yet it has become the best-selling imported model in America. In fact, Hyundai Motor America--based in an unprepossessing converted warehouse in Garden Grove--is emerging as a force in the U.S. auto market with a combination of low prices, upscale promotion and a quick-strike strategy that seems to have caught competitors by surprise.
The U.S. subsidiary of giant Hyundai Motor Co. introduced three versions of the Excel in this country with little fanfare in February, 1986. But it found ready buyers. Last year, 263,610 Excels were sold here at prices ranging from $5,195 to $7,665. In California, the Excel was the biggest-selling model, domestic or import, through October, 1987--the latest figures available.
That success came despite two recalls, questions about crash safety and reviews that would have killed a major motion picture.
“It’s dull, has modest performance and is one of the slowest cars in the market in any category,” said Csaba Csere, technical director of Car & Driver magazine.
“It shifts clunky; it’s slow in acceleration; its braking distances trail, and it has a noisy engine,” panned Michael Jordan, West Coast editor of Automobile magazine. “It doesn’t have the same mechanical spirit as a VW Fox or even a Ford Festiva. And the materials used for the interior and doors are kind of cheap.”
So why is the Excel a hit?
Apparently because it’s inexpensive--cheaper than any of its rivals except Yugoslavia’s Yugo--but, unlike the Yugo, the Excel has avoided being tagged with a reputation for poor quality.
“It’s a dull, utilitarian auto that has the typical Japanese virtues of reliability and durability at a very good price,” Csere said.
“It’s the lowest-priced real car on the market,” added George C. Peterson, president of AutoPacific Group, a Newport Beach-based automotive marketing and consulting firm.
In other words, it seems like a good deal for consumers on a budget or first-time buyers who would otherwise plunk down $5,000 for a used car rather than a much more expensive Japanese car that doesn’t look very different from an Excel.
And, noted John Dinkel, editor of Road & Track magazine, there are “a lot of people who want reliable, boring transportation.”
Which is not to say that owning what seems like a decent car at a rock-bottom price is boring to those people. Car shoppers at the Greater Los Angeles Auto Show earlier this month seemed to be finding just what they wanted.
“It’s a good price for what you get when you compare it to others on the market,” said 18-year-old student Stuart Smith of Woodland Hills.
“It’s a little bigger; it doesn’t look inexpensive, and it’s got a lot of standard options that others charge extra for,” noted 19-year-old student Andy Eveler of Chatsworth.
Even competitors grudgingly admire Hyundai’s success.
The Excel “combined low cost and the perception of Oriental quality to establish a new niche,” said Jim Olson, corporate public affairs manager for Toyota Motor Sales USA in Torrance. “It’s a market we’d been forced by the yen to walk away from--at least as perceived by the buyer.”
Necessary Features
“Consumers know about price,” added Curt Bartsch, public relations director for Carson, Calif.-based Nissan Motor Corp. “Do you think if they could buy a Sentra for the same price as a Hyundai, they’d think about buying a Hyundai?”
Even so, not all consumers are pleased.
“I looked at five Hyundais,” said Jay Sikora, 41, an Irvine marketing representative who also was at the Auto Show. “None had air conditioning, and they were all over $8,000. . . . There’s a Ford Escort Station Wagon here that’s $7,900, and the darn little Hyundai is $8,200 without air.” He was looking at the Excel GLS, the most expensive model, whose sticker price included a fancier radio, a sunroof and other extras.
That’s not an unusual complaint. The average Excel leaves the lot for $8,200, far above the current lowest sticker price of $5,395.
And while Hyundai’s advertising boasts of “more standard features than anything else in its class,” some of those features include such seeming necessities as rear view mirrors and five-passenger seating. Company brochures also tout “unique graphics” and “bright door handles.”
But then appearances count. In fact, they are one a key to Hyundai’s successful marketing strategy.
Hyundai, for example, hired Italian designer Giorgetto Giugiaro, who has designed cars for Alfa Romeo and Maserati, to come up with the Excel’s body design which includes a black-and-red accent stripe ordinarily found on more expensive cars. “Normally, you wouldn’t go to a big Italian designer for your cheap little car because you assume that people who buy cheap cars don’t care what it looks like--and that’s not correct,” noted Mike Anson, editor of Motor Trend magazine.
Perceived Good Value
Hyundai’s commercials never say “cheapest” or “lowest priced” but instead focus on life style. They often show college students or yuppies at play--even though the typical customer is a young person without a college degree who makes about $28,000 per year. According to marketing director Jack Collins, 55% of Hyundai’s customers are women because they typically earn less and the Excel is often a family’s second car.
“They’re looking for basic transportation back and forth to work, and they prefer a Hyundai to a 3-year-old Volkswagen with 60,000 miles on it,” said Arlie Sherman, owner of Buena Park Hyundai.
The comparison to Volkswagen is apt. Hyundai’s rapid success filling the low-price market niche is often compared by industry experts to the success enjoyed by VW’s Beetle in the 1960s.
Although the Beetle was never marketed as upscale--in fact, it was recently described by one company official as “pretty damned ugly”--it was also perceived as a good value even though it wasn’t the cheapest car of its time.
“But it was the one that people believed to be the best value,” explained Jay Amstoy, manager of Volkswagen’s U.S. public relations.
To promote that impression, VW used an ad in 1967 that is almost identical to the one now used by Hyundai. It read: “There are a lot of good cars you can get for $3,400. This is two of them.”
By 1968, Volkswagen had sold 423,000 Beetles and captured slightly less than 7% of the U.S. market. The car, however, was phased out in 1979 as the Japanese entered the low-price market and the Beetle had trouble meeting increasingly stringent air emission standards.
“The competition got real good,” Amstoy said. “Cars became more spacious, more powerful and quieter. The Bug was very good but, frankly, a bit outdated.”
By the 1980s, the low-priced end of the car market was being deserted both by the Japanese and the American companies.
The resulting vacuum--the average car sold in the United States now sells for about $13,000--sparked substantial interest. While established manufacturers eyed the opportunity, it was the Yugoslavs who acted first by introducing their tiny hatchback, the Yugo, to the American public in 1985.
The Yugo’s base price was an attractive $3,990, but it never managed to create the widespread impression of value once enjoyed by the VW Beetle. So all eyes turned to Korea.
Competitive Advantages
By 1985, companies that announced plans to bring South Korean cars to the United States included Ford with its Festiva and General Motors with its LeMans.
South Korea, after all, had significant competitive advantages over Japan: It was not bound by import quotas; assembly-line workers earn about $2.50 an hour, and its currency, the won --unlike the Japanese yen--is tied directly to the value of the U.S. dollar. The yen, by 1985, had risen in value compared to the dollar--making Japanese imports much more expensive.
Hyundai officials realized they had to act fast. Although two of the company’s models, the subcompact Pony and the slightly larger Stellar, were already a success in Canada, Hyundai had not planned to enter the U.S. market until 1987 or 1988.
But the company “decided to launch quickly in (February) 1986 because the window of opportunity would be prime at that moment,” explained Josh Ryan, a former Hyundai executive who is now is charge of advertising for Daihatsu, a new import from Japan.
The launch, however, was a quiet one--purposely quiet.
While Hyundai management privately set an ambitious first-year sales goal of 150,000, they announced a plan to sell just 100,000. The idea, recalled Ryan, was to avoid notice by the competition “so that it would be too late before anybody realized how big a threat they were going to be.”
The car that Hyundai brought to American was equipped with a 1.5 liter, four-cylinder engine and a transmission system designed by Mitsubishi Motors of Japan (which also owns 15% of Hyundai). The car was also redesigned and improved with finer fabrics and colors, and better-fitting doors, trunks and hoods to appeal to American tastes.
Hyundai hired Max Jamiesson, a former Toyota executive in this country, to run the new American operation. With him came four other executives from Toyota’s U.S. headquarters in Torrance who helped set up a dealer network that began with 75 showrooms in 31 states.
Per-Dealer Sales Record
The result was spectacular--first year sales of 168,882. Sales are expected to reach 300,000 this year through 300 dealerships. The number of dealers was purposely kept low (Nissan, for example, has 1,100 dealers) to allow Hyundai’s dealers to make up in volume what it loses in the Excel’s low profit per car. An Excel returns an average of about $1,400 in dealer gross profit for each car, compared with Honda or Toyota which return 10-20% more. In Hyundai’s first year here, the Excel set an average per-dealer sales record of 1,431 cars. That was more than double the average of Honda, the previous leader in car sales with about 610.
Hyundai’s impressive sales were achieved despite problems that included a labor strike last year in South Korea and the failure of the Excel to pass 1986 crash tests designed by the U.S. Department of Transportation’s Highway Traffic Safety Administration. The Excel passed the tests last year after installing a new type of seat belt.
Other problems forced two recalls. The first came just a month after the car’s introduction, when some cotter pins in the braking system were found to be either missing or damaged. Ultimately, only about six cars were found to be defective, Hyundai officials claim.
The second voluntary recall occurred last November so that the company could install semi-metallic pads on the front disc brakes of all 1986 and some 1987 models after federal tests showed evidence of brake fade.
Ratings services, however, including Consumer Reports and automotive consultant J. D. Power & Associates--while citing significant drawbacks and some dissatisfaction with the Excel--rate the car as reasonably adequate.
Other deficiencies--such as sluggish acceleration, sloppy workmanship and a high number of problems during the warranty period--may not matter to a lot of people. “For the everyday driving of the typical consumer, the car is more than adequate,” noted Chris Cedergren, senior automotive analyst with J. D. Power in Westlake Village.
“We’re striving every day to be better,” Jamiesson said. “We met all of the safety standards or we wouldn’t have been allowed to bring the car into this country in the first place. . . . If we do all the things people might like, it could be at the sacrifice” of price.
Which is not to say that Hyundai doesn’t have its eyes on consumers who can afford something a little better. The company plans to introduce a larger compact model this year at the same time that competitors--ranging from fellow South Korean companies to Malaysian and Spanish--join the battle for low-budget consumers.
The stakes are high in what is becoming a glutted small-car market. That market generates sales of roughly $53 billion a year and accounted for about 59% of all cars sold in the United States in 1987.
But analysts generally think Hyundai has a bright future.
“The Japanese are looking nervously over their shoulder,” said Ronald Glantz, a partner with Montgomery Securities. “They work harder than the Japanese; they’re just as smart; their labor and steel costs less. If they keep improving their cars, they’ll duplicate what the Japanese did--providing their political system holds together.”
