Hyundai is moving into Toyota territory
Oles Gadacz recalls those embarrassing days a decade ago when Hyundai Motor Co. was ridiculed as the 95-pound weakling of the auto industry, a purveyor of cheap and poorly made compacts.
At car shows, he got such little respect it felt like customers were kicking sand in his face.
“People breezed by our booth without even breaking stride,” said Gadacz, a Toronto native and the former public relations chief, who until his retirement last month served as the Western face for the automaker’s insular chief executive. “Those shows are your chance to show off your product to the world. And there we were, just wallflowers.”
Let’s just say Hyundai has hit the gym, put on some muscle and is ready to settle some old scores.
Today the company is the world’s fastest-growing automaker and has made no secret about its global ambitions. With its signature Sonata mid-size sedan, Hyundai now rivals Ford Motor Co. as one of the world’s largest automakers. Bolstered by good reviews of the 2011 model, the Sonata’s U.S. sales hit 18,536 in April, a 56.9% jump from a year earlier. The car trailed Ford’s popular Fusion sedan by only 435 vehicles.
“They have made extraordinary progress in catching up with the world leaders in automotive manufacturing,” said Aaron Bragman, auto industry analyst at IHS Global Insight.
Hyundai’s profit also jumped nearly fivefold to $1.37 billion for the first quarter of this year — establishing it as the best quarter in company history — boosted by strong sales in India and China.
Nobody’s kicking any sand now.
“Now even our competitors stop at our booth,” Gadacz said. “They huddle and stroke their chins and talk about what we’re doing. Suddenly, the big boys are taking notice.”
Make that one big boy in particular. Faced with a series of embarrassing global recalls of accelerator pedals and other issues, as well as a record $16.3-million fine from U.S. safety regulators, Toyota Motor Corp. now sees its suddenly feisty Asian car-making competitor looming in its rearview mirror.
“ Toyota is the No. 1 competitor in their sight and Toyota knows it. It is the target,” Bragman said.
Though Hyundai has refrained from any chest-pounding, with one top executive saying, “It’s not proper to talk about the difficulties of our competitor,” many South Koreans are puffing up their chests.
This year Hyundai will roll out its first gasoline-battery hybrid, which one South Korean newspaper has heralded as the “ Prius Killer.”
In a nation that suffered under nearly half a century of colonial Japanese rule, any sign of beating its rival — whether it’s in sports, diplomacy or car sales — is cause for celebration, analysts say.
“Such competition against Japan is embedded in South Korea,” said Yu Ji-soo, a business professor at Kookmin University in Seoul. “In many ways, Japan has always been ahead, with South Korea always chasing. That said, I think Hyundai officials are very eager to overtake Toyota.”
But while Hyundai and its affiliate company, Kia Motors Corp., see opportunity in Toyota’s stumble, the South Korean automakers see Toyota as a cautionary tale. They don’t want to repeat the mistake that Toyota executives have admitted making — emphasizing sales over quality — that stalled the Japanese giant.
“The last two years, Hyundai and Kia have made a lot of money. They have a profit cushion, so they have a cushion to absorb the cost of quality improvement, so they don’t repeat Toyota’s mistakes,” said Stephen Ahn, an analyst at LIG Investment & Securities Co.
Industry experts say Toyota’s loss can be Hyundai’s gain.
“In the long term, Toyota’s recalls can have a positive impact on Hyundai and Kia, whose reputation so far has not matched the high quality of their products,” said Kong Jeong-ho, an analyst for Prudential Investment and Securities.
“The Koreans have quietly made their cars better, but for years, all consumers could see was Toyota. Now as the perception of Toyota’s quality suffers, Hyundai and Kia are positioned to grow faster.”
Through the first four months of this year, combined Hyundai and Kia sales in the U.S. have grown 16.9% to 262,265, according to Autodata Corp. Toyota sales have grown by 11.7% to 543,125.
Moreover, Hyundai is gaining on Toyota in the U.S. at a time when the South Korean automaker is spending less to get people to buy its vehicles. Hyundai spent an average of $1,767 per vehicle on sales incentives last month, down 48% from April of 2009, according to auto information company Edmunds.com. During the same month, Toyota’s incentive spending rose 43% to $2,329.
Despite the gains, Hyundai and Kia, which combined have 7.4% of the U.S. auto market, still have a ways to go before catching up to their Japanese rival. And no one expects Toyota to cede turf easily. Throughout its recall crisis, Toyota has proved to be a notoriously tough competitor. This month the world’s largest automaker reported a profit of more than $2 billion in its latest fiscal year, despite heavy spending on recalls and sales incentives.
Hyundai traces its resurgence to the naming of Chung Mong-koo as chief executive in 1999. The son of the company’s founder, Chung — known as MK — for years oversaw after-sales service and was well acquainted with the dimensions of Hyundai’s quality control problems.
And the problems were many. Throughout the 1980s and ‘90s, Hyundai ranked at the bottom of the industry in customer satisfaction.
Chung wanted to change that. He set a goal to be among the industry’s top five sellers by 2010.
“People snickered at that,” Gadacz said. “It was almost laughable. We had so far to go.”
But Hyundai focused on making stronger, more resilient engines in all of its cars. And the automaker now often beats Toyota in some of the customer satisfaction surveys conducted by J.D. Power & Associates, the Westlake Village auto market research company.
Encouraged by U.S. sales, Hyundai and Kia are now aggressively marketing their brands. Hyundai continued its run of high-profile Super Bowl commercials and was the exclusive car advertiser for the Academy Awards, taking a spot traditionally held by General Motors.
Gadacz knows that the road to the top is winding and treacherous. Most car owners, he said, are brand loyal and are reluctant to switch companies even in bad times. And Hyundai still has some distance to go for its actual quality to match its reputation.
In the U.S. at least, the brand is gaining loyalty. Through the first quarter of the year, nearly 56% of Hyundai trade-ins resulted in the purchase of another Hyundai, according to Edmunds.com. Of all import brands, only Toyota had a better rate, but just barely: 58%.
These days, Chung is making another pronouncement. And this time, nobody’s snickering.
“He’s saying that we’re going to measure ourselves by dealer and customer satisfaction, not by mere sales,” Gadacz said. “That maybe we shouldn’t flood the market with our cars.”
Ju-min Park of The Times’ Seoul bureau contributed to this report.
