Why the Koreans are Catching Fire

Let's call him Frank. He lives near Washington, DC. Except for a few flings with open-top British sports cars, he has owned a string of American cars: A canary yellow Buick ragtop; a bevy of Fords, including Mustang and Fairlane convertibles; plus a few Jeeps and, most recently, a hot-red '93 Chrysler LeBaron convertible with a white top.

The LeBaron is now history, traded without a whimper for a more sedate forest green Hyundai Elantra 4-door sedan. Frank's vanity license plates indicating he is a “Korean War Veteran” were, perhaps fittingly, transferred to his new Made-in-Korea car.

Since the Korean War was fought 50 years ago, clearly he is no Generation Xer. So why, at his age and at this time in history, did he choose a small import for his Beltway escapades?

“I've almost always owned convertibles, so I thought it was time for a change,” he says. He also liked the Elantra's $11,900 sticker and promise of a 10-year, 100,000-mile (161,000-km) warranty, and it helped that he got around 5K for his old car.

Extensive warranties, low prices and loads of standard equipment its competitors charge for are proving attractive to a growing number of American car buyers.

One big irony is that all three Korean automakers marketing in the U.S. — Hyundai Motor Co. Ltd. and its Kia Motor Co. Ltd. subsidiary, and Daewoo Motor Co. Ltd. — have at one time or another been in deep financial trouble. Hyundai took over Kia in 1998 after Ford Motor Co. and Mazda Motor Corp., each of which had stakes in Kia, passed on a bailout scheme.

Now ever-aggressive DaimlerChrysler AG has purchased a 10% stake in Hyundai-Kia, but then DC itself has mounting financial problems. Daewoo is being flattened by $16 billion in debt, is near collapse, is under siege from its workers who face layoffs, and is practically pleading with General Motors Corp. to rescue it.

All of which poses a few questions: How can the Koreans price their cars so low when they need cash? Are they buying sales, risking possible dumping action from the U.S. government? And for buyers, who knows whether the Koreans will be around 10 years from now to honor those enticing warranties?

That doesn't bother Frank. “Hell,” he says chuckling, “I may not be around 10 years from now.” So he's enjoying his Elantra while he can. “It's got everything the more expensive cars have,” he says, “A/C, automatic transmission, adjustable mirrors, tape player, keyless entry and a 4-cyl. engine that goes like hell and gets 30 mpg (7.8L/100 km) on the highway.”

Frank is part of a growing throng snapping up Korean cars. Some of their popularity reflects their more advanced styling, powertrains and durability — implied or real — as expressed by those lengthy warranties.

No longer nondescript econoboxes plagued by quality glitches, they have developed a cachet of their own. That wasn't always true. I once rented a Kia Sephia in which the only interior accoutrements that matched were my two hands on the steering wheel

Still, there's no denying the Koreans are on a roll. As a group, in 2000, they sold 473,357 light vehicles in the U.S., a 44% gain in an overall market that rose only 2.7%. Moreover, the Koreans boosted their market share to 2.7% from 2.0% in a tough market marked by heavy giveaways by U.S. automakers.

And the beat goes on. During the first two months of 2001 (latest available), the Koreans sported a 30.8% gain while the overall market dipped 6.7%. Hyundai (thanks Frank) set the pace with a 40.9% increase, with Kia coming in 28.9% ahead and Daewoo, plagued by distribution problems, posting a tiny 1.4% increase.

Price is a big ingredient in their success and may become increasingly so as layoffs and shaky stock prices add to public wariness. Dick Macedo, executive vice president-marketing and sales of Kia Motors America Inc., recently suggested that Kia has a $2,000-plus price advantage over competitors. In small cars, that's big money.

Then there are those exhaustively advertised warranties, more appealing designs and “free” options.

That combination spells “value,” and it's tough to match. At least one GM exec says he can't compete with the Koreans on the low end, although a deal with Daewoo could provide GM with some ammo.

The Koreans' closest direct competitors are Chrysler's Neon; GM's Chevrolet Cavalier, Pontiac Sunfire and Saturn; Ford's Focus and Escort; Toyota's Corolla; Nissan's Sentra; Mazda's Protégé; and Honda's Civic. Except for Escort and the GM entries, all have been revamped or are all-new since 1999.

The GM models appear to be taking the biggest hit from the surging Koreans. All lost ground last year. It doesn't help that the Saturn S sedan has barely changed after 10 years in showrooms, and that Cavalier and Sunfire remain almost the same since their 1995 debut, with a meaningful makeover postponed until 2004.

The Japanese and American automakers could make it tougher on the Koreans if they chose to. They have cash the Koreans lack, and they could afford to match the 10/100,000 warranties.

And besides, they're likely to be around indefinitely. That may not be the case with at least some of the Koreans. As for Frank, we certainly hope he outlives his Elantra warranty — if he hasn't traded it for another ragtop before then.