Ssay it with SSUVs: Korea's SSangyong goes where the buyers are

Whoever coined the phrase "Go for the jugular" must have known a thing or two about South Korea's Ssangyong Motor Co. Ltd.

Unlike Hyundai Motor Co. Ltd. and Kia Motors Corp., who led their charge into North America with inexpensive, small cars spun off cheap, low-tech platforms, Ssangyong plans to take a radically different path. And this one will be right into the Big Three's stronghold: the sport/utility (SUV) market. The automaker will propel the Musso into the U.S. market in 1998 with the hope of selling over 10,000 units initially.

It's a bold move because no Korean automaker, or the Japanese for that matter, have gone toe-to-toe with the U.S. Big Three right out of the gate.

When the Japanese arrived in the 1960s, they tapped the U.S. market with small, inexpensive, fuel-efficient cars boasting quality and technology that helped them grab a chunk of the U.S. market. And Japanese automakers have supplanted their low-end cars with higher-tech successors. The short trail from the Honda Civic to Accord attests to that.

Korea's so-called "Big 2," Hyundai and Kia, have tried to mirror that same game plan, but have had far less success. Their stateside crusade has featured a series of small cars with inferior quality, partly due to an initial lack of technical engineering capabilities that forced a reliance on outdated technology borrowed from foreign automakers.

In 1986, the Hyundai Excel hit the U.S. market with a very attractive base price of $4,995 -- low enough for 168,882 buyers to take delivery. Three other models since have joined the Hyundai lineup, but a host of quality problems over the past decade have plagued the automaker. Hyundai conducted a massive recall on 270,000 Excels in the 1988-'89 model year to correct potential heater control valve-stem leaks that could have burned front-seat passengers feet and legs. The extent of the damage can be seen in Hyundai's 1995 Elantra/Accent sales of 47,908, a 72% drop from 1986 levels.

Hyundai is not the only Korean automaker with quality problems. Kia, well aware of Hyundai's travails, began with a clean slate in 1994 with its Sephia subcompact sedan. But, shortly after the launch, 6,945 Sephias were recalled for a faulty speed sensor. And last year the company recalled its Sportage SUV for a defective rear axle. Even so, Kia appears to be faring better in U.S. customer satisfaction polls with both Sephia and Sportage.

Ssangyong's technical help comes from Mercedes-Benz AG, which has many automakers waiting to see if that close link will translate into good quality.

Ssangyong, a South Korean truckmaker that boasts a-27-model lineup, produces 4-wheel drive SUVs like the Musso, Korando, KJ and Rally Car, a coach/van called Istana, express buses and several fight commercial vehicles and heavy trucks. This year the company expects output of 150,000, and forecasts double that by 2000.

Mercedes and Ssangyong formed a technical collaboration in 1991 after Mercedes parent Daimler-Benz AG acquired 5% of Ssangyong. In 1994, the two completed an engine and transmission plant in Changwon -- 130,000 units of each. Every engine Ssangyong builds bears some Mercedes technology. Further licensing agreements for passenger cars and large diesel engines are in the works, and Daimler may boost its stake to 20% this year, a Mercedes spokesman says,

Their agreement will enable Ssangyong in 1998 to begin producing its first passenger car for the domestic market based on Mercedes E-class technology. Ssangyong Vice President Dr. Chul-koo Yun, an 18-year veteran of General Motors Corp. who directed the company's material purchasing for its North American Operations before retiring in 1990, says Mercedes will provide 4- and 6-cyl. engines, front and rear axles, the floor structure and systems support for brakes, emissions, and safety, but Ssangyong will design the car. Mr. Yun says Ssangyong will meet full capacity of 50,000 cars two years into production. There are no plans to market the car abroad, he says.

Although the Ssangyong/Mercedes relationship may seem odd at first, both parties benefit.

Mercedes gains access to the Korean market, where it wants to raise its share of commercial vehicles from a paltry 1%.

For Ssangyong, the reward is the backing of a top-notch automaker for its first U.S. product. Mercedes has shared older truck technology around the world, but it has never shared its state-of-the-art technology from passenger cars.

Ssangyong is not worried about whether its Musso SUV can meet U.S. consumers' quality expectations. The vehicle humbly overtook the world's major SUVs in a competition for best design at the Birmingham (U.K. Motor Show last fall. The 24 panelists weighed design, style, quality, performance and fit and finish.

"Ssangyong and Mercedes also should have no problem existing together in the competitive U.S. segment," says Mr. Yun.

"We recognize that Mercedes will have its own product. We haven't worked it all out as partners yet, but Mercedes will take care of the higher end of the segment and we will take care of a lower segment. The Musso will be a high-quality, high-integrity product, and I think we will complement each other enough to avoid competition at the same level."

Skepticism persists. While the Mercedes -- will no doubt help Ssangyong, some market analysts believe the company will have to do more than price its Musso below the Big Three's SUVs. Ssangyong's product strategy "has to be one of low price," says Randy Miller, an Asian expert with Deloitte & Touche International Management Consulting firm. "They can't price it against the Explorer, Blazer or AAV. Regardless of the actual level of technology, there is the perception that Korean products are not put together as well, and that is difficult to overcome."

Despite tight foreign alliances now, South Korean automakers are all working to develop their own platforms and powertrains. Even Samsung Motors, which will come to the U.S. in 2002 with a car it is co-developing with Nissan Motor Co. Ltd., will wean itself from that assistance for its second-generation vehicle.

Daewoo Motor Co. Ltd. which will land on U.S. soil the same time as Ssangyong, could end up with an 11th-hour launch if it remains unable to find a general manager to head its U.S. operations and to launch its 1998 model compact car.

Despite these growing pains, at least one thing is certain: The South Koreans aren't going away.