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International Column
 
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HYUNDAI: FOLLOWER TO LEADER?
Truth lies further west
Hyundai is fast ramping up the numbers due to its momentum in third world markets. But metamorphosing itself into a premium brand still remains work in progress
Issue Date - 08/12/2011
 
While the journey for Hyundai Motor Company started as a unit to assemble cars for Ford Motor Company back in 1967, it was a matter of just few years before its founder Chung Ju-Yung started harbouring dreams of making a cut in the global automotive circuit. After the initial run, the years that passed attracted huge investments from the company for developing technological capabilities & since then, there has been no looking back. At the end of 2010, Hyundai stood tall at fourth place with sales of 5.74 million units along with its partner Kia Motors, ironically overtaking Ford, which managed to sell 5.31 million units even after a string of profitable quarters. Also, Toyota (which Hyundai used to follow), is still busy streamlining the production after the onslaught of the tsunami and several episodes of vehicle recalls.

With an employee base of about 75,000 people across the globe, the company is present in 193 countries through over 6,000 dealerships and showrooms worldwide. For the first three quarters in 2011, Hyundai filed an 18.2% growth in revenues and 34.1% growth in net income as compared to the same period in 2010. In unit sales, Hyundai has managed to register a growth of 11.7%, selling 3,024,000 units worldwide as compared to 2,707,000 units sold during the same period last year. At a time when the industry is facing a situation of squeezing margins, Hyundai has been able to take its net profit ratio to 10.7% compared to 9.4% in 2010. Undeniably, the chaebol has done a commendable job of making its presence felt among the biggies across the globe, and is looking desperately for ways to make its image more upmarket globally. But is it really managing to do so?

After the launch of its new brand slogan ‘New Thinking. New Possibilities’ at the 2011 North American International Auto Show in Detroit in January, the company has declared a new focus area. “Our goal is not to become the biggest car company. Our goal is to become the most-loved car company and a trusted lifetime partner of our owners,” said Euisun Chung, Vice Chairman, Hyundai Motor Company, at the Detroit Motor Show. The company is planning to expand its production capacity from 3,620,000 units at the end of 2010 to 4,320,000 units by 2012. The company will be producing more units in its plants overseas (2,050,000 units) as compared to its production in Korea (1,820,000 units) at the end of 2011 for the first time in its history and is planning to bring in higher efficiencies in its manufacturing process. From a situation of having no integrated platforms at the end of 2002 out of the total 22 platforms (producing 28 models), the company is expecting to reduce the platform count to 6 and integrate all of them, resulting in the production of 40 models. With a view to bring its products at a faster pace to the market, Hyundai is planning to reduce the model development time to 24 months by 2013 from 40 months in 2002.

 
As compared to competition, Hyundai’s geographical sales mix is radically different. While sales of Toyota and Honda are heavily skewed towards North America i.e. 27.8% & 41.5% respectively (2010), Hyundai sells 32.3% of its total production in Asia followed by 17.4% in Korea, 17.4% in North America, 12.8% in Europe and 20.1% in other major markets. Similar is the scenario when it comes to the product mix. On one end, Toyota and Honda have 41% and 46.6% of the product mix put together respectively in the compact, sub-compact & mini segment and on the other hand, Hyundai has over 57% of its products in these three categories. “It is time that we start thinking differently in order to bring the desired changes with respect to how we develop new models and sell in the market,” said Frank Ahrens, Director of the Global PR Team at Hyundai Motor Company. So far, the real gems from its innovation engine have been the i45 & Veloster with their fluidic design and some of their upmarket cars like Equus have also received acceptance. However, in a market like US, where premium still sells far better, Hyundai is still struggling. In US, luxury cars (sales of 7,55,746 units) took a 14.5% share of car sales for the ten months ending October 2011 (WSJ) while mid-sized cars (sales of 2,544,916 units) commanded a massive 48.8% for the same period. In comparison, the small car market, even after all the economic gloom, registered sales of 18,50,231 units or a share of just 35.41%. Moreover, even yoy growth rates of mid-sized and small cars were still similar at 11% and 10.5% respectively. In this market, Hyundai’s performance is still very poor relatively, with a total share of 5.2% in cars and light trucks (ten months ending October 2011) albeit with an impressive growth rate of 20.5%. The top five in the US in terms of market share are GM (19.8%), Ford (16.8%), Toyota (12.6%), Chrysler (10.7%) & Honda (9.1%). This is despite the fact that Hyundai ranked sixth on the J. D. Power Customer Service Index, 2011 (783); ahead of Ford (773) Honda (765) & Toyota (735).

This drastic contrast in perception surveys and reality reveals one important fact for Hyundai. While it is getting the numbers in third world markets, it’s aim to be a more upmarket manufacturer cannot materialise till it successfully builds its brand for premium segments. That objective may take several more quarters of commercially relevant R&D and out-of-the-box marketing strategies. Remember, Toyota wasn’t built in a day either!

          

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