Hyundai Wise to Expand Cautiously

THOSE WHO DON'T KNOW HISTORY are doomed to repeat it. To its credit, Hyundai is not allowing its recent success to blur the memory of its past mistakes and become overconfident.

Jacking up production and flooding the market with more product could increase profits and market share in the short term, but Hyundai officials are rightfully cautious about adding more plants and increasing capacity.

Hyundai Motor Group, the parent of both Hyundai and Kia brands, says there are no plans to build a third plant in America.

That is a wise display of restraint. Hyundai is ambitious and enjoying incredible success in North America. U.S. sales were up 26% through June, according to Ward's data, and are expected to exceed 600,000 units for the year.

Products such as the Sonata family sedan and new Elantra compact are so popular that hardly a day goes by when there is not a rumor about Hyundai building another plant in the U.S., Canada or Mexico.

Adding factories and increasing plant output does not automatically lead to quality problems — but it does increase the risk.

Just ask Toyota. For two decades the Toyota Production System was the global benchmark for quality and efficiency. Auto makers all over the world, from General Motors to Porsche, raced to imitate it.

Toyota and its renowned TPS seemed to be an irresistible juggernaut. “Who Can Stop Toyota?” has been a popular headline through the years.

Now we know the answer: Overly ambitious expansion can impede even the best auto maker's growth.

For the second year in a row, Toyota is leading the industry in recalls and top officials admit getting bigger too fast was a major cause.

“Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick,” Toyota President Akio Toyoda admitted last year.

So while Hyundai is basking in the glow of high-quality rankings, rave reviews and soaring sales, the bosses have not forgotten the bad times, when the brand almost joined Yugo on the automotive trash heap.

“We got killed on quality in the 1980s,” Hyundai Motor America CEO John Krafcik says in a recent interview (although he was not at the auto maker at the time).

“But the thing that takes you to the edge of the abyss, the thing that almost takes the company down ends up becoming a great strength, because you respect it more. And for us that thing is quality,” Krafcik says.

Hyundai has been carefully increasing throughput at its U.S. plant in Alabama, but Krafcik says the need to boost volume has never superseded quality concerns.

“We've had that discussion and those agreements at the very highest level of the company,” Krafcik says. “We won't put quality at risk.”

Krafcik is doubtful Hyundai could share a factory with another auto maker to incrementally increase production.

“In our company, we have this saying that if it is worth doing, it is worth doing on your own. Manufacturing is something you want to keep internal, I think.”