Hyundai's in the driver's seat now

David Olive

TORONTO STAR

The Indianapolis Colts are heavy favourites in today's Super Bowl contest. So is Hyundai Motor Co., the world's fastest-growing major automaker.

Hyundai has booked six coveted ad spots for the event, viewed by 95 million Americans. Some of the ads star Minnesota Vikings quarterback Brett Favre and all are narrated by Oscar-nominee Jeff Bridges (Crazy Heart).

The stakes are higher this year than in Hyundai's star turn in the same venues last year. The South Korean automaker, ranked fourth in the world by volume, will be touting its revamped flagship Sonata in a $160-million (U.S.) marketing-campaign assault on the family-sedan stronghold of Toyota Motor Corp.'s Camry, Honda Motor Co. Ltd.'s Accord and Nissan Motor Co.'s Altima.

"We talk big in big places," brags the marketing chief for Hyundai's North American operation, which is also the exclusive auto advertiser for next month's Academy Awards.

Hyundai is the big winner from the huge tumble in global auto sales last year, unprecedented in modern times. Amid slumping sales and red ink for almost all major makes, Hyundai sales, at $27.6 billion last year, held even with the 2008 level, as profits doubled to a record $2.6 billion.

Luck has played a role, to be sure. Hyundai benefitted last year from a weak local currency, the South Korean won, which inflated the revenue Hyundai repatriated on export sales. The company's lineup of modestly priced Sonatas, Elantra compacts and Tucson SUVs performed better than most rival models in last year's "cash for clunkers" trade-in programs in Korea, North America and Europe.

Hyundai has a lock on its home market, where it and its 39-per-cent owned affiliate Kia Motors Corp. account for a whopping 80 per cent of vehicle sales. For now, Hyundai relies on exports for only half of its global market share of 5.2 per cent, up from just 4.3 per cent only a year ago.

Yet Hyundai's growth prospects abroad are bright.

It's the No. 2 automaker in India, expected to become the third-largest world market by 2030, after China and the U.S. Hyundai already is the No. 2 non-Chinese automaker in the equally immense Chinese market.

Its models picked up market share last year in the U.S., still the world's most lucrative market, from a faltering General Motors and Chrysler and more recently from a humbled Toyota's recall of about seven million vehicles this year and last, and the requirement by U.S. law that Toyota suspend production of vehicles with faulty gas pedals, accounting for six of Toyota's most popular models.

"The recalls couldn't have come at a better time," a Seoul security analyst says. Buyers in the market for a Toyota usually check out Honda and Hyundai as well. Both Hyundai and Ford had closed their quality gap with Toyota already, even before the recalls.

Thus, the young Hyundai, founded in 1967, is expected by North American industry observers to raise its U.S. market share from a respectable 3 per cent as recently as 2008 to a stunning 10.8 per cent by 2013.

This is not your father's Hyundai, which for years after its North American debut in the 1980s had to offer generous warranties to compensate for a poor-quality reputation.

As recently as 2001, Hyundai ranked 32nd out of 37 brands in J.D. Power's rankings of new-vehicle quality. By 2006, Hyundai had vaulted to third place, and ranked fourth last year.

Hyundai's breakneck speed in ramping up production has some observers worried. The obvious question is: will the Koreans run into the same unmanageable "big company" dilemma to which Toyota has succumbed?

Hyundai rather blithely set a goal of building 6.5 million vehicles by 2011, a doubling of last year's record 3.1 million.

Toyota learned the hard way that there can be drawbacks to ramping up production from 5.7 million vehicles in 2000 to a peak of 9.5 million in 2007, a heady increase of 66 per cent. As Toyota opened an average of two new factories a year during that period, there wasn't enough time to inculcate the vaunted "Toyota Way" of exacting quality that had been Toyota's top selling point.

Hyundai's growth in production during that period was 113 per cent. In value-conscious Canada, where Hyundai's market share of about 7.5 per cent is almost double its U.S. share, Hyundai is giving thought to reopening a Bromont, Que., plant it closed in the mid-1990s. It's also contemplating a second plant in Brazil.

"Hyundai's rapid overseas expansion in recent years smacks of Toyota's expansionist ambition that failed the Toyota Way in some overseas operations," says Lee Hang Koo, Seoul-based auto-industry expert at the Korea Institute for Industrial Economics & Trade.

The South Korean automaker's answer is that it has made quality a responsibility across all functions, drawing engineers, designers, parts buyers, finance and marketing folks into twice-monthly "quality overviews" on each vehicle.

Hyundai's rapid-response culture also finds it quickly seizing market opportunities. When pump prices soared in 2008, Hyundai guaranteed U.S. customers a year's worth of gasoline at $1.49 a gallon. When U.S. jobless claims began to soar, Hyundai reaped positive notice with its "Assurance" plan, by which Hyundai buyers can return their vehicles if they lose their job. (By late last year, only 100 buyers had done so.)

Rather than quality, it's more likely that heightened competition might upset Hyundai's growth ambitions. Toyota will be fierce in restoring the reputation of its Camry, America's bestselling car. The well-received Ford Fusion and Chev Malibu also will be tough rivals for the Sonata.

That's where marketing can make all the difference. The vast improvement in GM and Ford quality remains a secret to most U.S. buyers.

Hyundai has pulled way ahead of the Detroit Three in telling its story.

Favre, notorious for indecision about quitting pro football, stars in one of today's Super Bowl ads, as receiving his MVP for the 2020 season. The quarterback declares, at last, that he will stay in the game.

Or maybe not.

Hyundai most definitely will remain in the game after 2020.

dolive@thestar.ca

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