NYCshopper
03-24-2006, 08:46 AM
Are the Koreans Riding Too High? (Forbes.com)
http://www.forbesautos.com/news/headlines/2006/march/fdc032206-korea.html
COMMENTARY: Are the Koreans Riding Too High?
by Jerry Flint
Forbes.com
Hyundai and Kia Motors, which Hyundai controls, are in the fast lane. The new Hyundai factory in Alabama is getting ready to produce its second vehicle — the new Santa Fe sport utility vehicle — and Kia has just announced that it will build a factory with an annual capacity of 300,000 units in western Georgia, just two hours from Atlanta. That puts the annual production capacity in America for the pair of companies at 600,000 units.
Hyundai and Kia are run as separate operations in the U.S.: Kia is supposed to move more toward sportier models, while Hyundai is to move toward formal models. Korean vehicles, which used to be cheapies, are getting decent designs as well as reputations for good engineering and high quality. The just-launched entry-luxury Hyundai Azera sedan is opening new markets, while the Santa Fe looks like a winner. Kia and Hyundai also have a new-generation minivan coming soon. With General Motors and Ford Motor retreating from that market, the Koreans are poised to take a bigger share of the minivan business.
The 731,000 total U.S. sales reported by the two companies last year are more than four times the combined sales from seven years ago. Hyundai's brilliant marketing stroke — the 100,000-mile warranty — has revived its fortunes in the U.S. This year is also off to a good start: In the first two months, Hyundai sales are up 7.1 percent, while Kia sales are up 3.2 percent.
And it's not just in the U.S. that the Koreans are having success. In Europe, the pair of companies has a 3.7 percent market share, and Hyundai is outselling Honda Motor and crowding Nissan. Kia also has plans to build an assembly plant in the Czech Republic.
In Asia, Hyundai has the number-two spot in the potentially huge market in India. Along with Kia, Hyundai is making a splash in China, as well. The pair holds 11.2 percent of the Chinese market, compared with 13.7 percent for U.S. manufacturers.
My problem is that I have a long memory.
The Koreans are terribly ambitious and terribly aggressive, and in the past they have been hurt by such tactics. A few years ago, the industry in Korea expanded too rapidly; Daewoo went bankrupt and was taken over by GM. Renault grabbed Samsung's failed effort at expanding into car manufacturing. And Hyundai rescued Kia by taking a big stake in that company at a time when Hyundai itself was in serious trouble.
Another issue: The Koreans don't play well with others. Hyundai just tossed U.S. boss Robert Cosmai, even though the company had an excellent year in a tough market. Last year, Kia bounced its U.S. president, Peter Butterfield, in the middle of a dealer dinner, while Hyundai recalled the Korean head of its new Alabama plant right after the factory started production.
My guess is that the home office sets impossible goals, and no matter how good the results, if people don't reach these goals they are punished. Setting high standards is great, but this kind of instability eventually causes an organization to become dysfunctional.
I am also curious as to why they are building a second plant so soon.
The Japanese have plants here, so the Koreans must have them, too. And if Hyundai has one, why not Kia?
Another factor is the value of Korea's currency, which is making their imports more costly. The exchange rate for the won was 850 to the dollar at the start of 1997. Then came the Asian collapse; by January 1998, the won moved past 1,770 to the dollar, and it has never come all the way back. It's this cheap currency — not cheap labor — that keeps Korea's export prices low.
Recently, the won has been climbing — from 1,000 to the dollar in January, to 965 to the dollar in February. From what I can see, with the currency strengthening and those tough Korean unions to deal with, Hyundai and Kia want to outsource their auto production.
Frankly, that's a risky move. The Hyundai plant in Alabama, which employs 2,700 workers, makes more Sonata sedans than the company can sell. They figure the new U.S.-built Santa Fe will go back to annual sales of 100,000 or more per year — a jump from its sales of 68,000 in 2005. The problem is that this American-made SUV is bigger and will probably cost more than the Korean-built model. Competition has grown too, so it will be hard to get the kind of sales increases the Koreans expect.
The combined Hyundai/Kia lineup is strong in sedans, small- and medium-size SUVs and minivans. At present, neither company has the type of other models — pickups, rear-wheel-drive sedans, large SUVs, luxury vehicles, etc. — that could help it move up to the next level. The Koreans promised a pickup for next year, but that was a while ago, and it doesn't look like it's going to happen.
It's possible that the companies will do fine with both plants, but I think the Koreans are stretching their luck — something they've done before.
http://www.forbesautos.com/news/headlines/2006/march/fdc032206-korea.html
COMMENTARY: Are the Koreans Riding Too High?
by Jerry Flint
Forbes.com
Hyundai and Kia Motors, which Hyundai controls, are in the fast lane. The new Hyundai factory in Alabama is getting ready to produce its second vehicle — the new Santa Fe sport utility vehicle — and Kia has just announced that it will build a factory with an annual capacity of 300,000 units in western Georgia, just two hours from Atlanta. That puts the annual production capacity in America for the pair of companies at 600,000 units.
Hyundai and Kia are run as separate operations in the U.S.: Kia is supposed to move more toward sportier models, while Hyundai is to move toward formal models. Korean vehicles, which used to be cheapies, are getting decent designs as well as reputations for good engineering and high quality. The just-launched entry-luxury Hyundai Azera sedan is opening new markets, while the Santa Fe looks like a winner. Kia and Hyundai also have a new-generation minivan coming soon. With General Motors and Ford Motor retreating from that market, the Koreans are poised to take a bigger share of the minivan business.
The 731,000 total U.S. sales reported by the two companies last year are more than four times the combined sales from seven years ago. Hyundai's brilliant marketing stroke — the 100,000-mile warranty — has revived its fortunes in the U.S. This year is also off to a good start: In the first two months, Hyundai sales are up 7.1 percent, while Kia sales are up 3.2 percent.
And it's not just in the U.S. that the Koreans are having success. In Europe, the pair of companies has a 3.7 percent market share, and Hyundai is outselling Honda Motor and crowding Nissan. Kia also has plans to build an assembly plant in the Czech Republic.
In Asia, Hyundai has the number-two spot in the potentially huge market in India. Along with Kia, Hyundai is making a splash in China, as well. The pair holds 11.2 percent of the Chinese market, compared with 13.7 percent for U.S. manufacturers.
My problem is that I have a long memory.
The Koreans are terribly ambitious and terribly aggressive, and in the past they have been hurt by such tactics. A few years ago, the industry in Korea expanded too rapidly; Daewoo went bankrupt and was taken over by GM. Renault grabbed Samsung's failed effort at expanding into car manufacturing. And Hyundai rescued Kia by taking a big stake in that company at a time when Hyundai itself was in serious trouble.
Another issue: The Koreans don't play well with others. Hyundai just tossed U.S. boss Robert Cosmai, even though the company had an excellent year in a tough market. Last year, Kia bounced its U.S. president, Peter Butterfield, in the middle of a dealer dinner, while Hyundai recalled the Korean head of its new Alabama plant right after the factory started production.
My guess is that the home office sets impossible goals, and no matter how good the results, if people don't reach these goals they are punished. Setting high standards is great, but this kind of instability eventually causes an organization to become dysfunctional.
I am also curious as to why they are building a second plant so soon.
The Japanese have plants here, so the Koreans must have them, too. And if Hyundai has one, why not Kia?
Another factor is the value of Korea's currency, which is making their imports more costly. The exchange rate for the won was 850 to the dollar at the start of 1997. Then came the Asian collapse; by January 1998, the won moved past 1,770 to the dollar, and it has never come all the way back. It's this cheap currency — not cheap labor — that keeps Korea's export prices low.
Recently, the won has been climbing — from 1,000 to the dollar in January, to 965 to the dollar in February. From what I can see, with the currency strengthening and those tough Korean unions to deal with, Hyundai and Kia want to outsource their auto production.
Frankly, that's a risky move. The Hyundai plant in Alabama, which employs 2,700 workers, makes more Sonata sedans than the company can sell. They figure the new U.S.-built Santa Fe will go back to annual sales of 100,000 or more per year — a jump from its sales of 68,000 in 2005. The problem is that this American-made SUV is bigger and will probably cost more than the Korean-built model. Competition has grown too, so it will be hard to get the kind of sales increases the Koreans expect.
The combined Hyundai/Kia lineup is strong in sedans, small- and medium-size SUVs and minivans. At present, neither company has the type of other models — pickups, rear-wheel-drive sedans, large SUVs, luxury vehicles, etc. — that could help it move up to the next level. The Koreans promised a pickup for next year, but that was a while ago, and it doesn't look like it's going to happen.
It's possible that the companies will do fine with both plants, but I think the Koreans are stretching their luck — something they've done before.