Hyundai America Suffers Growing Pains While Seeking Solutions

Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – Hyundai Motor America has problems, but it also has answers.

Among the problems, sales of currency-hedging vehicles built in Alabama were down 8% through July; the strong Korean won (or weak American dollar) is cutting into profit margins of imported cars; and a shortage of 4-cyl. engines is preventing sales of small cars customers are clamoring to buy.

“I could sell twice as many Elantras if I could get them,” John Krafcik, vice president-product development and strategic planning, tells attendees at the Management Briefing Seminars here. “We have plenty of V-6 engines and larger cars and too few Accents and Elantras (sedans) to meet current market demands.”

Most of Hyundai’s product pipeline is stuffed with big cars, rather than small ones, Krafcik says.

Additionally, there has been no decision on adding small-car production to the Alabama plant, although there is room for a third or even fourth product, he says. Output through July rose for the Santa Fe cross/utility vehicle, but Sonata sedan production fell.

But reinforcement is on the way.

Early next year, HMA will begin selling a 5-door wagon based on the Hyundai i30 sold in Europe and other overseas markets, as Ward’s first reported in March from the Geneva auto show, where the hatchback version of the i30 debuted.

The Elantra Touring will be sold as an ’09 model and come equipped with standard safety technologies that include electronic stability control with traction control.

Elantra Touring 5-door wagon to be based on Hyundai’s i30 <i>(above)</i> sold in Europe.

Hyundai also plans to bring to market a production version of the rear-wheel-drive Genesis concept car with 3.8L and 4.6L engines. A concept coupe on the same platform with the 4.6L engine will be exhibited at the L.A. auto show in November.

Additionally Hyundai is building a 4-cyl. engine plant in Alabama that will be ready “fairly soon,” Krafcik says, adding the auto maker already has begun offering higher-trim Sonatas with 4-cyl. engines.

“In 2007, we have 21 years in the U.S. market,” he tells executives. “We have a long way to go, and the best way to address (the challenge of growth) is to design an extraordinary lineup of great cars and trucks.”

While Chinese auto makers are sure to grow and be successful, Krafcik does not expect them to compete in the U.S. under their own brand names.

“It’s difficult to imagine a Chinese brand coming and being successful,” he says. “It has taken Hyundai 21 years to get to 3% of the market. It is more likely that Chinese vehicles will come to the U.S. in existing distribution networks, like the deal between Chery and Chrysler (LLC).”

Krafcik, who first visited Hyundai plants in South Korea in 1989 as part of research for the book, The Machine That Changed the World, says his company is a blend between Toyota Motor Corp.’s practice of kaizen (continuous improvement) and the cowboy mentality of the Western world.

In other words, Hyundai sets high targets for itself.

Krafcik says the data he monitors makes him optimistic Hyundai will continue to grow in the U.S., noting 22% of potential car buyers now consider Hyundai for a purchase, compared with 13% in 2003.

He looks forward to the day a single website gathers all the rating data for car models to make it even easier for buyers to do their research.

“For a brand like Hyundai, a consumer aggregate site like this would be good,” he says. “Our reputation within the industry is stronger than in the general population, so more data for consumers is a wonderful tool to reduce the lag time between reality and perception.”

He also says too much data can obscure customer focus. Hyundai has scrapped a 19-question customer-satisfaction survey in favor of a single question: “Using a scale of 1 to 10, how likely are you to recommend this Hyundai dealer to your friends and family?”