Fibonacci

Hyundai's Toyota Obsession Fuels Drive to Pass DaimlerChrysler
2005-07-26 16:45 (New York)


By John Lippert and Yunsuk Lim
July 27 (Bloomberg) -- To get to Hyundai Motor Co.'s
research center in Namyang, 30 miles (48 kilometers) southwest of
Seoul, you drive past long stretches of rain-swollen rice paddies
and concrete-block shacks. Those images of South Korea's
impoverished past fade when you reach the center, a gleaming
complex filled with wind tunnels, crash-test tracks, clay-model
design studios and prototype assembly plants.
Seoul-based Hyundai, once an exporter of low-quality
vehicles, has become an automaker poised to compete with rivals -
- including Japanese role model Toyota Motor Corp. -- in all
major markets, says Ron Harbour, president of Harbour Consulting
Inc., a manufacturing research firm in Troy, Michigan. Chairman
Chung Mong Koo, 67, says he wants the capacity to build 5.5
million vehicles annually by 2007, up from 4 million today. He
also says he wants overseas output to increase to 45 percent of
Hyundai's total by 2007 from 20 percent now.
Chief Executive Officer Kim Dong Jin says he expects Hyundai
Auto Group, which includes Kia Motors Corp., to be ranked among
the world's five largest automakers as soon as 2009, passing
Volkswagen AG and DaimlerChrysler AG.
``If it took the Japanese 30 years to evolve into globally
dominant automakers, the Koreans are trying to do it in half the
time,'' Harbour says. ``They can do it, but there will be some
ups and downs along the way.''
Some of the bumps were apparent in the first quarter of this
year, when Hyundai's pre-tax operating profit fell 30 percent to
322.7 billion won ($313.6 million) as sales slumped 0.6 percent
to 6.17 trillion won.

Second-Quarter Net Income

Hyundai Motor is likely to say on July 28 that its net
income fell 12 percent to 448 billion won in the second quarter
from a year earlier, according to a survey of nine analysts by
Thomson Financial. The rise in the Korean won made Hyundai's cars
more expensive overseas than those of its competitors. Sales
probably fell slightly to 7.12 trillion won from 7.18 trillion
won a year earlier.
``It will definitely be worse compared to last year,
especially with the rise in the Korean won,'' says Park In Hee,
who helps manage about 1 trillion won at KB Investment Trust
Management Co. in Seoul. ``We expect the company to start to do
better from the next quarter.''
The company's shares rose 19.5 percent to 66,300 won this
year through July 26 compared with a 22 percent rise in the
benchmark Kospi index.
The stock has room to move up, says Wendy Trevisani, who
manages 999,720 Hyundai Motor shares at Thornburg Investment
Management Inc. in Santa Fe, New Mexico.

`Improve Brand Equity'

``We think management is solid, with the ability to improve
brand equity, yet the valuation hasn't reflected the recent
improvements,'' she says.
Hyundai Motor sold for 8.6 times estimated 2005 earnings on
July 26, compared with an average of 12.3 times for companies in
the Bloomberg World Auto Manufacturers Index.
Hyundai was founded in 1967 by Chung Mong Koo's father,
Chung Ju Yung, who rose from poverty in the farming town of
Tongchon in what's now North Korea to become the billionaire
owner of his nation's largest industrial empire. Though he
appointed his younger brother, Chung Se Yung, as chairman of
Hyundai Motor, Chung Ju Yung kept his eye on daily production.
He was known as ``the Tiger'' among his employees because of
his surprise inspections at Hyundai work sites. He would show up
even in the middle of the night to rouse and question employees.

Largest Complex

Chung Ju Yung based Hyundai's manufacturing operation in
Ulsan, a former fishing village on what Koreans call the East Sea
and what the Japanese call the Sea of Japan. Today, the company's
dock at Ulsan is surrounded by a tangle of blue buildings that
make up the largest automotive manufacturing complex in the
world, with five assembly plants, seven engine factories and
34,000 workers.
The Ulsan complex can make 1.6 million vehicles annually; 60
percent are sent directly to the dock for shipment overseas.
The company, with Chung Se Yung at the helm, made its first
foray into the U.S. market in 1986, exporting $6,000 Excel
subcompacts.
Chung Se Yung opened a factory in Bromont, Quebec in 1989,
which turned out Excels that were plagued by engines that blew up
too often and sheet metal body panels that rusted out too fast.
By 1994, Chung Se Yung had closed the Bromont factory after
finishing last in an annual study of initial quality by Westlake
Village, California뻖ased J.D. Power & Associates. In 1998,
Hyundai Motor sold 90,217 vehicles in the U.S. compared with 1.4
million for Toyota.

32 Years in the Job

The next year, Chung Ju Yung ousted Chung Se Yung as
Hyundai's chairman after 32 years in the job. The move came
partly because the younger brother opposed Chung Mong Koo's plan
to buy bankrupt Kia, South Korea's second-largest automaker, and
to use combined profits to finance an overseas expansion, says
Don Southerton, who owns Bridging Culture, a Vista,
California뻖ased consulting firm with clients that include
Hyundai Motor.
The family drama continued in 2000. As Chung Ju Yung lay
dying, two of his five sons fought over a business empire that
included the world's largest shipyard, the world's second-biggest
memory chip manufacturer and South Korea's biggest auto company,
Hyundai.
At first, it seemed Mong Koo, the oldest son, would be the
loser. Chung Ju Yung bequeathed control of the bulk of his
sprawling Hyundai conglomerate to Mong Hun, the fifth in line.
Mong Koo was left with only one business, Hyundai Motor.
In just a few years, the two brothers' fates diverged. Mong
Hun leaped to his death at Hyundai's Seoul headquarters in 2003
after being charged with illegally funneling money to North
Korea.

Second-Richest Investor

Mong Koo has steered Hyundai Motor so well that he's now the
country's second-richest equity investor with 1.33 trillion won
in holdings, according to the Korea Stock Exchange. Lee Kun Hee,
63, chairman of Samsung Electronics Co., ranks first with 1.38
trillion won.
Hyundai Motor's road to global prominence still has some
potholes. The company benefited when the won slumped against the
U.S. dollar during the 1990s Asian financial crisis.
In 1999, Hyundai could export a car to the U.S. with the
equivalent of $12 in hourly wage costs, or half as much as
General Motors Corp., says Kim Hag Ju, an analyst at Samsung
Securities Co. in Seoul.
Chung Mong Koo can't count on this tailwind any longer. The
won rose 11.5 percent against the dollar in the 12 months ended
on July 26. He also faces the resurgence of domestic competitors
such as Inchon-based GM Daewoo Auto & Technology Co. and Busan-
based Renault Samsung Motors Co.

Biggest Truckmaker

Mumbai-based Tata Motors Ltd., India's biggest truckmaker,
may export cars to South Korea soon, says Ravi Kant, executive
director for commercial vehicles.
Another worry is South Korea's credit card binge. One in 13
of the nation's 48 million people was behind in his or her debt
payments by at least three months at the end of 2004, government
data showed.
This debt forced people to cut back on buying cars.
Industrywide sales dropped 17 percent in 2004 to 1.09 million
vehicles and another 4.7 percent this year through May.
Investors should also be concerned about 13.8 trillion won
in debt spread through dozens of companies now controlled by
Chung Mong Koo, not just 1.8 trillion won in debt at the motor
company, says Eun Jin Kim, a Standard & Poor's analyst. Kim has a
junk rating on the automaker's debt.
He says the rating could deteriorate further because INI
Steel Co., South Korea's second-largest steelmaker, said in May
that it planned to build two blast furnaces. Chung holds an 11.7
percent stake in INI Steel; Kia holds 19.9 percent.

Outwork Competitors

Even so, Hyundai retains the ability to outwork its
competitors, says Kazuo Ishikawa, executive vice president of
Central Motor Wheel of America Inc. in Paris, Kentucky. ``In
Japan and the U.S., when people get to a certain level, when they
get rich, they start getting lazy,'' says Ishikawa, whose company
makes wheels for Hyundai Motor's plant in Montgomery, Alabama and
Toyota's factory in Georgetown, Kentucky. ``The Koreans and the
Chinese, they're still hungry.''
At GM Daewoo Auto in Inchon, CEO Nick Reilly, 55, who joined
that company from Vauxhall Motors Holdings Ltd., estimates his
engineers are 20 percent more productive than and work for half
the pay of GM engineers in Detroit. The same is true at Namyang.
Peter Butterfield, 52, a U.S. native and CEO of Kia's U.S.
sales unit, says this productivity is a manifestation of
Confucian beliefs about hierarchy and respect for elders that he
says are stronger in South Korea than anywhere else. The main
impact is speed.

Scheduled Redesign

Butterfield says that soon after he joined the company in
November 2001, his Korean supervisor asked whether they should
move up to August a scheduled redesign of Kia's Optima sedan.
Butterfield remembers asking, ``You mean August 2003, right?''
The supervisor replied, ``No, I mean August 2002.''
Butterfield says his former employer, Ford Motor Co., would
have spent months writing 500-page research papers before making
this decision.
The Beijing airport is a good place to measure how fast
Chung Mung Koo is moving. A string of 50 construction cranes
lines a field across from the main airport building; they're part
of an effort to build a new terminal for visitors to the 2008
Summer Olympics.
Taxis from Hyundai Motor are one element of the Beijing
government's effort to present an upbeat image during the
Olympics. The yellow-and-green Elantra compacts from Hyundai
Motor present a trim and contemporary contrast to the red Charade
subcompacts that Tianjin FAW Xiali Automobile Co. started selling
as taxis in Beijing 20 years ago.

Hoping For Elantra

Beijing residents can sometimes be seen waiting as Charade
taxis pass by, hoping for an Elantra.
Hyundai Motor opened a joint-venture factory with the
Beijing government 3 miles north of the airport in 2002. The
factory is surrounded by suppliers such as Hyundai Mobis Co.,
whose cockpit, suspension and front bumper modules make up 40
percent of the value of each car, General Manager Chun Yong Duk
says.
Hyundai Mobis workers, who are paid about $300 a month,
build the modules on assembly lines with an expensive array of
robots and computer-controlled test stations.
The quality they help produce equals that of Hyundai Motor
in South Korea, says Noh Jae Man, president of Beijing Hyundai
Motor Co.
Last year's 16 percent operating margin at Beijing Hyundai
was the widest anywhere in Hyundai Motor.

Competitors Cut Prices

The margin, the share of sales left after paying all
business expenses, may narrow to as little as 10 percent this
year as competitors cut prices, Noh says.
To prevent that, he was trying to cut the labor needed to
assemble each car by 17 percent, to 20 hours, from June to
September.
Beijing Hyundai can make 300,000 cars annually at its
existing plant; it's building a second factory nearby. Along with
Kia, Hyundai aims to build 1 million vehicles annually in China
by 2010, or one-fifth of its global output, Noh says.
Chung Mung Koo is starting to sell Hyundais in Japan via
Mitsubishi Motors Corp. dealerships. He's building a second
factory in India, where Hyundai is the third-biggest automaker.
He's building a 1.1 billion euro ($1.3 billion) factory for Kia
in Slovakia.

`Upper-Income Customers'

``It's amazing how well Hyundai and Kia have been accepted
by upper-income customers, even in places like Switzerland,''
says Christian Takushi, whose funds at Swissca Portfolio
Management AG in Zurich hold 58,600 Hyundai Motor preferred
shares and 31,636 common shares.
One advantage Hyundai Motor has in Switzerland is that
nobody remembers burning engines and rusting body panels from the
1980s and 1990s.
That's not true in the U.S. Today, only 16 percent of U.S.
car buyers will consider a Hyundai compared to 60 percent for
Toyota, 46 percent for Honda Motor Co. and 33 percent for Nissan
Motor Corp., according to John Krafcik, Hyundai's U.S. product
development chief.
To make matters worse, Toyota can charge $20,697 for a
typically equipped four-cylinder Camry compared with $18,505 for
a Hyundai Sonata, according to Edmunds.com, a Web site that
compares automobile prices.
Since taking over Hyundai Motor five years ago, Chung has
been obsessed with erasing Toyota's price premium. Every Monday
morning in Seoul, he personally inspects new models and scolds
his subordinates when he spots a defect.

Advice From J.D. Power

In a wood-paneled conference room on the ground floor of his
Seoul headquarters, he posted a 6-foot-square board with advice
he received from J.D. Power III himself in 1998.
The advice, including the admonition that Hyundai Motor
wasn't listening enough to customers, won't come down off the
wall until Chung meets his goal of passing Toyota in quality.
``They've not just been listening but very much following what we
said,'' J.D. Power III says.
After finishing last in the J.D. Power initial quality
survey in 1994, Hyundai tied for 10th with GM's Hummer, with 110
customer complaints per 100 cars, in the 2005 survey; Honda
finished 12th, with 112. Toyota's Lexus brand ranked first, with
81.
CEO Kim says Hyundai Motor now recognizes that volume won't
lead to sustained profits if the company can't also charge
premium prices. ``Therefore, we changed the company slogan,'' Kim
says. ``We want to become the quality leader instead of a volume
manufacturer.''

Upscale Sedans

To do that, Chung is hiring stylists who specialize in
upscale sedans, including Tom Kearns, who designed the Cadillac
CTS, and Joel Piaskowski, who designed the Buick Lucerne.
Chung is also developing new products for the U.S.,
including a minivan, a Ford Explorer뻮ize SUV and a rear-wheel-
drive luxury sedan.
Changing the brand's reputation won't be easy, says Doug
Scott, senior vice president at Gfk-Automotive, a marketing
consulting firm in Nuremberg, Germany. Sales at Volkswagen's Audi
unit plummeted after reports of unintended accelerations by its
cars in 1985, and they didn't recover for 15 years, Scott says.
``Even if Hyundai Motor keeps improving its initial quality
and durability, I think it would be 2010 or 2015 until customers'
perception of its quality risk relative to Toyota collapses down
to zero,'' he says.
Hyundai Motor's damaged quality reputation in the U.S. is
just one measure of how difficult globalization can be. Even
Toyota, a company that in 2001 plastered the walls of its
factories worldwide with an operating philosophy called ``the
Toyota Way,'' can't achieve uniform results, says James Womack,
president of the Lean Enterprise Institute in Brookline,
Massachusetts, a Boston suburb.

Internal Data

Toyota's internal data indicate that its overseas plants,
when measured in terms of quality, productivity and ability to
introduce and build a variety of models on time, perform at 85 to
90 percent of the level of factories in Japan, Womack says.
Dennis Cuneo, senior vice president of Toyota's North
American unit, says that performance standards are highest in
Japan. He declined to quantify the difference.
Hyundai Motor showcased its globalization campaign on May
20, when Chung dedicated the company's $1.1 billion Montgomery
assembly plant. Former President George H.W. Bush welcomed
Hyundai Motor by reminding the 4,500 people gathered in a white
tent next to the factory that South Korea is one of a handful of
countries with soldiers fighting with the U.S. in Iraq.
``This plant is only the latest manifestation of close ties
between two great nations,'' Bush said.

Hamburgers, Not Kimchi

Chung, who is so concerned about blending into Alabama life
that he ordered Koreans assigned to the plant to eat hamburgers
in the cafeteria, not seasoned Korean vegetables called kimchi,
seemed subdued when speaking about preparations to build the
company's new Sonata sedan in Alabama.
``It's been a long, tough three years,'' he told reporters.
Hyundai started building Sonatas in Montgomery in May, two
months later than planned. The Alabama factory is the most
automated Hyundai Motor factory in the world, in part to
compensate for the lack of industrial experience among its
workers, says Samsung Securities' Kim Hag Ju.
Arriving steel is unloaded, stamped into metal body panels,
stored in overhead conveyors and then welded into finished car
bodies -- all without being touched by human hands.
Many different vendors built the machines. Sometimes,
computer software had to be developed on the spot to make sure
the machines communicated effectively, says John Kalson, director
of production.

Assembly Line Stopped

Meanwhile, the entire assembly line stopped. Instead of
building 150,000 Sonatas in 2005, the company now has a goal of
120,000, CEO Kim says. Bob Cosmai, who runs Hyundai Motor's U.S.
sales operation, says Sonata output may total 80,000 this year.
The Alabama plant is so automated and uses so many modules
from Hyundai Mobis that it's expected to employ 2,000 workers to
make 300,000 vehicles annually. That's half as many people as
Honda needed to build the same number of cars at its factory in
Lincoln, Alabama.
Those 2,000 Hyundai employees, many of them from dissimilar
work backgrounds, still need to find a way to blend together.
Kalson came from a Ford factory that makes Mustangs in Flat Rock,
Michigan. The superintendent of his final-assembly shop comes
from Nissan; the stamping shop chief, from GM; the engine shop
head, from DaimlerChrysler; and the paint shop boss, from Ford.

`Pick and Choose'

``We get to pick and choose what works from these different
systems,'' Kalson says. ``As far as the cultural mind-set on how
we do business, it's just kind of bred that way.'' That's why he
sent hundreds of workers for training in South Korea, he says.
CEO Kim is feeling the pressure. ``As our companies are
growing so fast, it's not easy to assign good managers, competent
managers, to overseas plants,'' he says.
On June 1, 11 days after the dedication in Alabama, Hyundai
named Ahn Joo Soo as the plant's CEO, replacing Lee Moon Hee. The
company shows no sign of slowing down. ``When this plant becomes
profitable, and when we have the need, the customers, we are
going to build another plant,'' Kim says.
Hyundai Motor's manufacturing methods, with top-down control
exercised through personal relationships more than through formal
bureaucracies, is best suited for running high-volume factories
with few model changes as in Ulsan, the Lean Enterprise
Institute's Womack says.
``The question remains: Can they put in a production system
that gets them reasonable costs and high quality when they're
faced with a strong won as opposed to a weak won, and when
they're operating off shore as opposed to back home?'' Womack
says. ``I'm not saying they can't, but they're certainly facing a
higher degree of difficulty.''

Win or Lose

The person with the most to win or lose is Chung Mong Koo's
son, Chung Eui Sun, 34. He's being groomed to take over the
family business by serving as president of both Hyundai Mobis,
South Korea's largest auto parts maker, and Kia, whose stock
price soared 43.4 percent to 15,200 won this year through July 26
as it began sharing more new-model designs with Hyundai Motor.
As an informal troubleshooter for his father, Eui Sun, who
holds an MBA from the University of San Francisco, helped resolve
a land dispute that threatened to delay construction of the Kia
plant in Slovakia, Bridging Culture's Southerton says.
South Korea's Confucian heritage means investors won't know
how capable Eui Sun is until he takes over, says Richard Steers,
a management professor at the University of Oregon. ``In Korea,
nobody asks how the son is doing because it's offensive to the
father,'' Steers says.

`World-Class Managers'

Seoul-based LG Electronics Inc., the world's fourth-largest
mobile-phone maker, is making South Korean history by reaching
outside its founding family to allow CEO Kim Ssang Su, 60, to
function as its most visible leader and spokesman. Some investors
say Hyundai may also reach outside in search of management
talent.
``Someday, these companies will have the courage to appoint
world-class managers, and that will make them stronger,'' says
Henry Seggerman, CEO of New York뻖ased International Investment
Advisers, which owns 46,000 Hyundai Motor shares.
In any case, Chung Eui Sun won't have to fight over his
father's deathbed to gain control. He's Chung Mong Koo's only
son, so he's certain to be walking in the footsteps of a
grandfather who left a farm to create one of Asia's great family
dynasties and a father who thrust Hyundai Motor onto the global
automaking stage.

AcuraGT-3

Well they are smart, they are copying the best in the business......

Hyundai, 10 years ago, who whould have thunk it?????? Amazing what they have done here.

Fibonacci

I've yet to be tempted by any product from the other "H". By all accounts the new Sonata is competitive, but it still looks derivative to me.

But yes, it is amazing what they've accomplished in just 10 years.

Fibonacci

http://wheels.blogs.nytimes.com/2010...m-p-g-by-2025/

fsttyms1

More power to them. At the rate they are climbing with the products they have now i wouldnt put any thing past them.

Belzebutt

I don't believe any prediction about 2015, let alone 2025.

PortlandRL

:ibssftsxsayshondawilldoitfirst:

yohan81718

^ hahaha

Hapa DC5

with a 5AT to boot...

CL6

"There's room to move as a fry cook."

biker

:vaporware: + manipulation of numbers (like Chevy does with the Volt claiming it gets 200mpg)

Fibonacci

http://www.nytimes.com/2011/02/19/bu...19hyundai.html

JS + XES

iTrader: (1)

biker

Detroit/Michigan still doesn't get it.

Fibonacci

http://www.businessweek.com/news/201...rket-cars.html

gatrhumpy

iTrader: (1)

I would rock an Elantra, Sonata Turbo, Azera, Genesis, and Equus easily, if I could afford the last two.

NJ SHAWD

Amazing. It looks like they've beaten their goals from 2005. I just bought my first Optima (words I never thought would come out of my mouth) and am more than pleased. Hyundai is making greater advances than any other car company...or maybe that's just my perception.

Rockstar21

iTrader: (1)

on the MPG subject... didnt the old DX/VX civics get close 45-50 mpg hwy in the 90's?

i dont see why people put these numbers up on a pedastal like they are hard to achieve..
just make a lightweight shitbox with a bulletproof M/T and tiny motor

but hyundai as a whole has impressed me for sure... the Genesis coupe and Sedan are something i would consider.

dallison

they are doing great things.

dallison

They're talking about the entire lineup, not just their smallest car.

NSXNEXT

iTrader: (2)

Hope to be rocking one soon.
Sorry Acura You lost another one. I tried....I really tried...

gatrhumpy

iTrader: (1)

Genesis?

Sly Raskal

iTrader: (1)

https://acurazine.com/forums/car-talk-5/%2445k-used-potentially-new-performance-sedan-what-would-you-look-822218/

YEH

The Azera? Really? (Unless you are talking about the new one which hasn't been released in the US yet.)

Of Hyundai's current US lineup, I would say that the Accent, Sonata and Genesis are the better models.

Anyway, Hyundai has maxed out its capacity at its Alabama plant at 330K, so unless they are planning to add-on (like what Kia is doing in Georgia), the talk of another Hyundai plant may be closer to reality.

Pure Adrenaline

iTrader: (2)

Not maxed out yet. You will find out soon.

Fibonacci

http://www.bloomberg.com/news/2011-0...nion-cars.html

phee

iTrader: (5)

This will not end well

Fibonacci

http://blog.polk.com/blog/blog-posts...kia-juggernaut


Advance

Fibonacci

http://www.bloomberg.com/news/2012-0...-u-s-cars.html

AZuser

Go Hyundai, go!

oo7spy

I realize this was a half year ago, but...
Where else did they have to go? The expectations 7 years ago, even 3 years ago for many, were so low any improvement would be a surprise. I'm not trying to take anything away from Hyundai because they are doing great, but the other companies that were doing good to begin with could not possibly make the same strides. There isn't enough room for improvement on their end.

phee

iTrader: (5)

PortlandRL

I get a kick out of the UAW trying to unionize the foreign car companies in the United States. They're barking up the wrong tree there.

gatrhumpy

iTrader: (1)

Good for the workers. This will keep costs down.

gatrhumpy

iTrader: (1)

Pure Adrenaline

iTrader: (2)

Cars are getting heavier and bigger than ever due to extra components for new safety regulations. There was a great article in Motor Trend a while back about this.

I would love to see those old Civics pack on another 500 pounds and still get 45-50 MPG on the highway... or anywhere.

F23A4

Especially Asian automakers.

oo7spy

The Civic has gained almost 450 lbs since 2000. There is a chart here with the weights. http://en.wikipedia.org/wiki/Honda_Civic

jayhawk815

This, combined with changes in EPA ratings and testing methodology have led to these numbers being so much more difficult to achieve.

PortlandRL

Somebody crunched the numbers and using the old EPA dynamometer-only testing methods from the late 70s and early 80s, my Elantra would be rated for 38 MPG city, 57 MPG highway. The Prius would be rated for 72/70, Civic hybrid for 61/66, and the Equus for 19/32.

We all know that WON'T happen.