Hyundai Improved Quality Demands Higher Prices

SEOUL – Hyundai Motor Co. Ltd. plans to shed its historically low prices as the brand accelerates its quality strides.

“When our quality is almost equal to (Tier 1 non-luxury brands), then our prices should be similar,” Steve S. Yang, president and CEO, tells North American media at the auto maker’s global headquarters here.

Raising the price of Hyundai vehicles is one of the auto maker’s “main goals” not only for the U.S. market but worldwide, he says.

Hyundai already is seeing success in the U.S., John Krafcik, Hyundai Motor America president and CEO, tells Ward’s. “It’s a really interesting situation right now. Our prices are higher than they’ve ever been, but our value is perceived to be the highest it’s ever been.”

Consumers are responding favorably to the brand’s higher-priced vehicles, with transaction prices in the U.S. rising 11% since 2008 and sales up 22.7% through May, he adds.

However, executives here admit Hyundai’s positive perception is not growing as quickly as its third-party accolades. Earlier this month, the new Sonata received an “excellent” score from Consumer Reports magazine in a test of family sedans.

“Hyundai quality is now ranked near the top, however customer perception is not ranked quite with it,” says Charles Bang, director of Hyundai’s corporate quality division. The auto maker plans to remedy this with “quality marketing activities,” including a continued heavy emphasis on the brand’s awards.

Hyundai’s goal is to rank among the top-3 auto makers in actual quality over the next three years and place among the top five in perceived quality in five years, Bang says.

HMC President Steve. S. Yang fields questions from North American media in Seoul.

The auto maker’s quality turnaround is credited to Hyundai-Kia Group Chairman Chung Mong- koo, who in 2000 launched the Quality Management Initiative, shifting the company’s focus from manufacturing to customer satisfaction.

The result was a dramatic improvement in quality and customer trust, Bang says, noting Hyundai now ranks above the industry average on J.D. Power & Associates’ widely watched Initial Quality and Vehicle Dependability surveys.

Hyundai has followed a variety of plans to continue its drive toward matching the quality of industry leaders over the last 10 years.

“Systemized quality-management activities” allow Hyundai to minimize quality risks, Bang says. A focus on speed lets Hyundai detect any problems “as early as possible. It allows us to make an immediate investigation to reduce the failure costs.”

Every morning, Bang finds emails in his inbox detailing quality-related problems with Hyundai vehicles in various global markets. The auto maker quickly allocates the appropriate engineers to study the issue and develop a countermeasure.

Yang says Hyundai’s reputation will be put to the test with the U.S. launch of the premium Equus car later this year. Long sold in the domestic market here, the fullsize luxury sedan will be the auto maker’s biggest and most-expensive U.S. model.

“I don’t know how many cars we can sell (in the U.S.),” Yang admits. He hopes Hyundai’s ability to build luxury cars such as the Equus and Genesis will positively influence consumers’ opinion of some of the brand’s lower-price offerings.

HMA officials have said they expect Equus sales to be relatively low, at about 1,000-3,000 units annually.

Hyundai officials in Korea are non-committal about Equus pricing, shooting down a suggestion of a $399 monthly lease. “Oh no,” says Han Chang-Hwan, senior vice president-America Region for Hyundai.

At April’s New York auto show, it was said the sedan would start in the mid-$50,000 range when it hits U.S. dealers later this year.

HMC executives here also say the auto maker will consider a third U.S. manufacturing plant when combined sales of Hyundai and Kia models hit 1 million units in North America. This year’s tally is expected to reach 900,000 deliveries, HMC says. Last year, Hyundai sold 435,064 vehicles and Kia accounted for 300,063, Ward’s data shows.

The Hyundai-Kia Group operates two U.S. plants: Hyundai Motor Mfg. Alabama in Montgomery, AL, and Kia Motors Mfg. Georgia in West Point, GA. The annual capacity for each facility is 300,000 units.

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