Hyundai, Kia Muscle into U.S., Europe Markets

Still little known in Europe and surging in the United States, Korean automaker Hyundai and sister Kia are muscling their way into markets dominated by national players and the Japanese.

Together, Hyundai and Kia are now the fifth largest automaker in the world after global sales grew 15% to 6.6 million vehicles in 2011.

They hope to pass the seven million mark this year, and the United States and Europe -- both highly competitive, mature markets -- are key to that strategy.

In Europe, Hyundai's sales grew 12% last year while Kia's sales jumped 11% to a combined 692,500 vehicles.

They did even better in the United States, with Hyundai up 20% and Kia up 36% to a combined 1.1 million vehicles, a new record.

"The American market is so important in term of psychology for the group," said John Kfracik, president of Hyundai Motor America, on the sidelines of the Detroit auto show.

Hyundai's initial entry into the United States in 1986 was marred by quality problems, which tarnished the brand's reputation long after the issues were corrected. The introduction of the industry's first 10-year warranty -- compared with just three years at quality leaders like Toyota and Honda -- reassured the nation's quality and value-conscious consumers.

Timed at the beginning of a major expansion of Hyundai and Kia's product offerings following the establishment of their first U.S. assembly plants, the warranties helped Korean auto sales explode.

Clever marketing helped Hyundai capture even more market share amidst the deepest economic downtown in decades when it offered to buy back its cars if new owners lost their jobs. "We've been known as a value brand. That has been a position that has suited the company's strategy very well," Krafcik told the Automotive News World Congress Ton Jan. 10.

"We're in the midst of a move to becoming a valuable brand."

A big part of that shift is a major design revamp and a switch from the old "fast follower" business model to a focus on innovation, he said. That innovative approach has been seen in recent advertising campaigns, with Kia using hip hop hamsters and basketball stars to help bring new customers into show rooms.

The main constraint on sales growth in the United States is supply: both Hyundai and Kia are nearing full capacity in their local plants and have no immediate plans to build more, Krafcik said.

Stiff competition from Toyota and Honda -- raring for gains after finally recovering from supply shortages caused by the March earthquake and tsunami disaster in Japan -- will also limit the Korean growth, analysts said.

But the Japanese troubles were not at the root of the Korean success. "They achieved that growth because of design and quality," said Henner Lehne, an analyst with IHS Automotive in Germany.

In Europe, Hyundai and Kia have developed the compact cars and diesel engines which are popular among urban dwellers. And Kia hired former Audi designer Peter Schreyer to revamp its image there a couple of years ago, a strategy that has borne fruit as Kia's new designs have won several prizes.

"Their models are adapted to the needs of different regions," said Yann Lacroz, an analyst with Euler Hermes.

Another key to its success is that the group has built plants in lower cost areas -- such as anti-union southern U.S. states and Slovakia -- to serve the European market.

The biggest challenge in Europe will be increasing the profile of the group, said Hyundai France chief Patrick Gourvennec, who cited, for example, the "image deficit in France."