Kia Chief Tests Atmosphere for New Car Launch
Greg Warner likens himself to a famished diner with a full plate but no fork.
The chief operating officer of Kia Motors North America is eager to dig into what has been set before him: the challenge of establishing South Korea’s No. 2 car company as a main course on the crowded U. S. new-car menu.
But with just 13 months to go until the first Kias are scheduled to hit dealers’ showrooms, Warner presides over a nearly empty suite of offices in a nondescript building in a corner of the Irvine Spectrum business complex.
As industry analysts speculate about whether Kia will ever get off the ground here--and whether U. S. auto buyers want or need another Korean car--Warner finds himself in a fix. Until Korea’s central bank approves Kia’s foreign investment, Warner will have no funds to retain a marketing agency. He can’t even hire the staff he needs to start selling dealership franchises.
But the tall, bespectacled executive, known in the automotive world as a product specialist with a talent for divining the American consumer’s appetites, is sanguine.
He has been learning about the Korean way of doing business since 1985, when he was hired away from his product-planning post at Toyota Motor Corp. U.S.A. to help develop Hyundai Motor Co.’s American launch.
The Korean government exerts tremendous control over the nation’s businesses, and Kia’s North American venture is dependent on central bank approval of the sizable foreign expenditure it represents.
“They operate at their own speed” within the banking system, Warner said, “but the word we get is that they will approve the funding in early September. Then we’ll be able to get started.”
The challenge Warner and Kia are taking on is formidable. The U. S. auto market is in one of its worst recessions ever, and more than a dozen car makers with more than 200 models are slugging it out in a shrinking market. Yet as it prepares to enter the fray, Kia plans to offer only one product: an economy-priced, four-door, compact sedan.
The company will also have a very limited presence, with at most 100 dealers in fewer than two dozen states. And it will bear the double stigma of being a new-car company in a market generally suspicious of new products, and of being a Korean firm in a market still disappointed with that nation’s initial offering six years ago: the Hyundai Excel, which was plagued with quality problems in its early years.
In the face of all this, the 48-year-old executive is aggressively upbeat.
Kia’s first model is expected to be joined within eight months by a three-door hatchback version of the sedan and by a compact sports utility vehicle in two- and four-door versions, Warner said. In 1994, a third product, still under wraps, will debut in the United States. And a sporty convertible version of the sedan is on the drawing boards.
The company’s first U. S. offering is already in production for the Korean market, where it was introduced earlier this year as the Sephia--a name Warner says will not be used in this country.
Prototypes of the Sephia, or “S-Car,” and the Kia Sportage, the sports utility vehicle, were displayed publicly for the first time at the Tokyo International Auto Show early this year.
“The styling is dramatically better than anything Hyundai has produced” and equal to that of many Japanese cars, said George Peterson, president of the AutoPacific Group consulting firm in Santa Ana. “And if the Festiva is any example, the fit and finish of their cars should be high-quality.”
Kia has been manufacturing the Festiva, Ford Motor Co.’s economy car, for the past five years. More than 400,000 Festivas have been sold in the United States, and Consumer Reports--one of the toughest taskmasters a car maker faces--has placed the subcompact on its buy list for the past two years.
Although the U. S. car buyer isn’t exactly screaming for yet another imported economy car, a niche has opened up, said David Hillburn, an auto-marketing specialist in Los Angeles.
“The Japanese are being forced to vacate the economy-car segment because of pricing pressures at home and in the U. S.,” he said. “And consumers are feeling the pain of the recession, especially in California, so there is a strong place in the market for a product that offers a good value.”
Kia’s pricing will provide that value, Warner said, adding points for appearance and quality to its score with U. S. consumers.
“No matter how good we are, we still will be the new kid on the block, so we have to have attractive prices,” Warner said. The goal is to be able to put customers into a Kia sedan equipped with power brakes, automatic transmission and air conditioning for less than $10,000, meaning that the base price of the sedan--which will come with a Mazda-designed two-liter, 16-valve, four-cylinder engine--should be $8,500 or less.
Warner adds that he thinks Kia North America will benefit by entering the market when the U. S. economy is expected to begin recovering from the recession and post-recessionary slump that have crippled auto sales for more than three years.
But even if the recovery hasn’t begun when Kia starts retail sales, Warner said, “our launch goals are modest enough that we can adjust them” to fit the circumstances.
He also said Kia’s modest presence will work to its advantage by giving dealers fairly large territories and by giving the company time to establish a reputation for good service and high quality.
Warner had a hand in Hyundai’s record-setting early sales, then left after business hit the skids in 1989. Warner refuses to discuss the reasons for his departure, but reportedly he was upset by the home office’s decisions to ignore the U. S. staff’s urgings for quality-oriented product modifications and to concentrate instead on pumping out enough cars to satisfy what appeared to be an insatiable demand. While auto analysts generally agree that Hyundai is now producing a high-quality line for the U.S. market and selling it through an improved dealer network, there are tens of thousands of early Hyundai buyers who have little good to say about Korean cars.
Warner stoutly maintains that Kia is a different company with a different heritage. “It operates more like Japanese companies, with consensus decision making,” he said.
Unlike the giant Hyundai Group and other Korean conglomerates, Kia is not a family-controlled company with a single dominant executive. Its employees are the biggest block of shareholders, with 20% of the stock. Other major owners are Ford, with a 10% share, and Japan’s Mazda Motor Co., with 8%. Kia’s president, Bum-Chang Lee, started with the company as an engineer.
Analysts note that, while Hyundai was pushing for 100,000 sales its inaugural year--a goal it surpassed easily--Kia is shooting for far less.
Warner will not set a hard-and-fast figure but he says he would be happy with first-year sales of between 30,000 and 40,000 cars.
That is a realistic goal in the crowded and recession-choked U. S. market, said Thomas O’Grady, president of Integrated Automotive Resources Inc., a Delaware auto-industry management consultant.
“Kia will have to build slowly to earn a reputation,” he said. “There have been a lot of good small manufacturers, like Daihatsu, Sterling and Peugeot, that have gone by the wayside recently, so there is a lot of room for people to be concerned about the viability of a new car company in the U. S.”
Warner, however, says that Kia already has a presence and a reputation for quality; his job is simply to bring it to the attention of American buyers.
That reputation, he says, was forged with Ford’s Festiva. “That is strong evidence that Kia is handling the quality side of the ledger at a level that will satisfy the American consumer,” Warner maintains.
Maybe so, but first he has to get the message out.
“Beating the Festiva quality drum will help, and Kia probably will get good play from the auto-buff magazines,” said David Cole, director of the University of Michigan’s office for automotive transportation studies. “But the cars and the company also will be reviewed by a pretty tough press that is continuing to expand the definition of world-class quality in the automobile industry. They are dealing with an increasingly tough customer.”
Getting the word out in the short time before the product is introduced will take “a lot of midnight oil burned in the marketing strategy department” said Tom Dukes, director of long-term competitive market forecasting at J. D. Power & Associates, the automotive consulting and quality-rating firm in Agoura. “There is little doubt that Kia’s products will be OK,” Dukes said. “The Festiva is very good, and, besides, in this market at this time, they’d be crazy to bring in anything less than a high-quality car. But the dealer network and marketing strategy will be critical, and most important of all will be their customer handling. They are going to have to do something to set themselves apart because there are already an awful lot of good four-door sedans out there.”
Warner said he intends to do just that, to give Kia customers a reason to remember the company and its dealerships. “There are some creative approaches that I intend to implement,” he said.
High on the list of strategic dealership approaches are those used in General Motors Corp.’s Saturn network, relying on sales agents who know their products, know how to compare them to the competition and do not pressure prospective buyers to make immediate decisions, and a pricing policy that encourages dealers to stay with the sticker price so customers don’t have to worry that someone else is getting a better deal on the same car.
Warner will not give specifics about his plans for Kia dealerships. Setting up the network, however, will be the second task Warner will tackle once the funding for Kia Motors North America is approved.
The first will be to expand the 13-member skeleton staff with which he has worked for most of the past year.
“Once we’ve got the staffing and organization in place, we’ll begin our dealer development drive,” he said.
Warner would not discuss the budget for the launch. Industry observers say the company will have to spend several million dollars to do what Warner says must be done.
By the time the first Kia sedans arrive in the United States in September of next year, Warner expects to have a staff of 130 coordinating an auto import and marketing organization with dealerships in the four key markets where most imported cars are purchased: California, the Pacific Northwest, the Northeast and the Gulf states. Warner will also be hiring advertising, marketing and corporate image-making firms and expects to announce the marketing and image contract within a few weeks.
Warner hopes to create a uniquely North American image for the company, keeping the Kia name but redesigning the company logo and the badges that appear on the cars’ grilles to appeal to Western eyes.
Also, he has imported two production prototypes of the four-door sedan and will have drivers test the cars’ limits over 200,000 miles of U. S. highways and back roads in an ongoing effort to fine-tune the cars for the North American market.
Warner, who got his start in 1968 as a marketing analyst with Ford, knows better than most the need for an image that separates the U. S. product from its parentage.
He remained in the domestic auto industry only three years, leaving Ford in 1971 to join Toyota. In 14 years with the company, he established a product planning liaison with Toyota in Japan and assumed responsibility for market research, product planning and corporate planning.
He was wooed away from Toyota in 1985 to help launch Hyundai, starting at Hyundai Motor America’s Fountain Valley headquarters as group vice president for operations and ending up four years later as chief operating officer.
It was his exposure to the Korean business community while at Hyundai that led Kia to offer him a top post in the United States
Warner’s knowledge of the peculiarities of both the American market and the Korean auto business, analysts say, could give Kia a good start in this country--if the honchos back home pay attention.
*
Kia Coming to the U.S. Kia Motors Corp., Korea’s No. 2 auto maker, is entering the crowded U.S. market. Its North American subsidiary, based in Irvine, says funding for the venture is expected in early September.
* KOREAN-MADE CARS SOLD IN THE U.S.
Year Brand Maker introduced Total sold Ford Festiva Kia Motors Corp. 1986 300,028 Mitsubishi Precis Hyundai Motor Corp. 1987 66,097 Hyundai (various models) Hyundai Motor Corp. 1986 1,190,175 Pontiac LeMans Daewoo Motor Co. 1987 228,330
* International Sales Total worldwide sales of Korean-made motor vehicles
Company 1991 1992 to date Hyundai 767,302 409,164 Kia 431,047 237,639 Daewoo 198,783 83,771
* A Look at Kia
Name: Kia Motors Corp. Kia Motors North America Founded: 1944 1991 Headquarters: Seoul, Korea Irvine Employees: 22,100 (1991) 13 (1992) Products: Passenger cars, Passenger car, Oct., vans, trucks and 1993; sports-utility buses vehicle, June, 1994
* Sources: Financial World magazine, individual corporations Researched by JOHN O’DELL and JANICE L. JONES / Los Angeles Times
