S. Korea's Troubles Aren't Kia, Hyundai's

By JOHN O’DELL

April 29, 1998 12 AM PT

TIMES STAFF WRITER

As his bosses in Seoul struggled with bankruptcy last week, Dick Macedo was hurtling around a racetrack in Ventura, apparently worry free as he and other top brass at Kia Motors America Inc. spent a day feting automotive writers.

Indeed, the South Korean auto importer’s new sales and marketing chief insists that economic woes plaguing the parent company--the entire South Korean auto industry, in fact--have little impact on Irvine-based Kia’s operations in the United States.

If Macedo is seeing things through rosy lenses these days, he isn’t alone.

At rival Hyundai Motor America Inc. in Fountain Valley, sales have increased for the first time in years, and executives are planning to introduce several new models--including a minivan and a much-needed sport-utility vehicle.

And in Compton, executives of Daewoo Motor America Inc. are stockpiling boatloads of sedans, coupes and station wagons as they prepare to launch South Korea’s third incursion into the U.S. auto market early this fall.

“The Korean car companies are in a lot of trouble at home,” says auto industry analyst George Magliano of WEFA Group economic consultants in New York. “But a company like Kia is probably just too big and too important to the South Korean economy for the government to let it fold.”

In fact, South Korean car makers say their automotive operations are solvent, even though sales in Korea are expected to fall 40% this year as the country’s consumers slash spending in the face of nationwide economic slowdown.

The car companies say their real financial woes stem from losses in other businesses. Kia, for example, owns a debt-ridden steel maker. A company spokesman in Seoul recently said that if Kia Steel and an automotive subsidiary that builds cars for the Asian market could be sold, Kia Motors itself would be in fairly stable condition.

Hyundai, which recently trimmed its American corporate staff by about 10%, has operating losses in the U.S., but says the market, which generates 100,000 in auto sales, is crucial to its worldwide success.

Kia’s U.S. operation now is making money as it increases sales and adds dealers, Macedo says. Even if the parent company is taken over by another car maker, he insists, the U.S. company is unlikely to disappear.

“We’ve invested $200 million in establishing the Kia brand in the United States,” he said. “It would be foolish to throw all that away.”

Although their sales are up, the South Korean importers are duking it out in the weakest part of the U.S. auto market--low-priced economy cars.

With prices that start as low as $9,100--for a stripped Hyundai Accent--they lure consumers whose credit ratings might not fly in a Honda or Chevrolet store.

The devaluation of the Korean won is helping Kia and Hyundai by letting them offer big discounts--via rebates--in the United States without cutting too deeply into earnings sent back to Korea. Kia advertises $1,000 rebates on its 1998 Sephia sedans and is giving back $2,000 on 1997 Sportage SUVs. Hyundai offers rebates of $1,000 to $1,500 on 1998s and up to $3,000 on remaining 1997 models.

Here’s how the two Korean car importers now selling vehicles in the United States shape up as they face a pivotal point in their histories:

Hyundai Motor America

The company began U.S. sales in 1986, creating a new low-price niche with the Excel economy car.

Hyundai set American sales records in 1987 and 1988, but stumbled badly as officials in South Korea pursued a high-volume strategy in the U.S. at the expense of quality control. The Excel developed a reputation for unreliability, and sales plunged after hitting a high of 264,282 units in 1988.

With 470 dealers and a presence in all 50 states, Hyundai sold 113,186 cars in the United States last year. For the first three months of 1998 it reported 25,648 sales, a 33% gain over the same period in 1997. The numbers make Hyundai officials happy, but by comparison, American Honda Motor Co. sells that many cars every 10 days.

“We do have baggage in the image area,” says Finbarr O’Neill, Hyundai’s chief counsel and acting chief operating officer. “But we find that when we get people into our cars now, they are genuinely surprised at the quality. Our challenge is to get people to overcome their initial concerns and actually take a look at the cars.”

He says Hyundai is focusing its advertising “on persuading people that this is a changed company.” The present ad campaign uses “a whole new Hyundai” as its tag line. The company also is rolling out a parallel campaign that uses testimonials from recent buyers.

Hyundai’s U.S. lineup starts with the economy subcompact Accent and tops off with the mid-size Sonata, a car that will be replaced later this year with a new 1999 model. The compact Elantra line will get a face lift for the 1999 model year.

Hyundai is planning to introduce a V-6 powered minivan for the U.S. in 1999 and a sport-utility vehicle in 2000.

Kia Motors America

The company’s South Korean parent is on the block and could have a new owner soon.

Contenders are Ford Motor Co., which already owns a 17% share; Samsung Motors, which could use Kia’s manufacturing plants to speed up its own roll-out; a consortium of Ford and Samsung; and Hyundai Motors, which made a hostile takeover offer that some observers saw as a bid to block Ford. Kia officials insist the car company still could surprise observers with a self-rescue.

Kia began selling cars in the United States in 1994, and has grown steadily. It has 392 dealers in 38 states, and expects to be in all 48 contiguous states by the end of the year. In the first quarter this year, Kia sold 19,475 cars and sport-utility vehicles, up from 8,246 in the first three months a year earlier. Macedo says he expects 1998 sales to top 90,000.

A former advertising executive who changed careers in 1993 to help start Kia’s U.S. operation, Macedo became second in command this month. He succeeded Greg Warner, who died in March at age 54.

Kia will continue to position itself as a car company with “affordable quality--not cheap, but affordable,” Macedo says. Its advertising continues to stress reliability at low cost, showcasing a Kia Sephia that ran alongside a Honda Civic sedan for 100,000 miles with no problems. The ads compare Kia’s $9,995 base price with the Honda’s base of $12,735.

This year, Kia will add a two-door “convertible” version of its Sportage sport-utility vehicle--the rear half of the roof is removable. It presently sells the Sephia sedan and four-door Sportage.

For the 1999 model year, Kia will introduce a V-6 engine for the Sportage line, as well as a subcompact “B” car, which Macedo describes as “a basic, entry-level vehicle to compete with the Toyota Tercel” class. A seven-passenger minivan is due in early 2000, with a new mid-size sedan to follow.

Kia also sells the two-seat convertible Elan in South Korea. Some industry observers say the car could compete well in the hot roadster niche in the United States. While Kia officials say there are no plans now to bring it here, the Elan is appearing in cover stories in several U.S. car enthusiast magazines in coming months.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Hyundai Motor America

Headquarters: Fountain Valley

Parent company: Hyundai Motor Co., South Korea

President: M.H. Mark Juhn

Acting Chief Operating Officer: Finbarr O’Neill

Non-dealership employment: 423

Dealerships: 470 in 50 states

Entered U.S. market: 1986

1998 year-to-date sales: 25,648

Hyundai Lineup

*--*

Auto Type Introduced Sonata Mid-size sedan 1989 Elantra Subcompact sedan 1992 Accent* Subcompact sedan 1996 Tiburon** Sporty coupe 1997

*--*

* Replaced Excel

** Replaced Scoupe

***

Sales Slump

Hyundai’s U.S. sales peaked in 1988, but quality and reliability suffered under high-volume production and sales fell drastically. U.S. vehicle sales:

1997: 113,186

Kia Motors America

Headquarters: Irvine

Parent company: Kia Motors Corp., South Korea

President/CEO: W.K. Kim

Vice President, Sales and Marketing: Dick Macedo

Non-dealership employment: 304

Dealerships: 392 in 38 states

Entered U.S. market: 1994

1998 year-to-date sales: 19,475 vehicles

Kia Lineup

*--*