When It Comes to Cars, Korea Is the New Japan

Hyundai and Kia have sold more vehicles to Americans than all European automakers combined through the first seven months of 2011, and they’re growing faster than any other automaker. Here’s how South Korea’s automakers have the rest of the world on the run.

It’s not a great time to sell new cars and trucks in the United States, what with people not having cash or jobs or homes that are worth as much as they thought when they bought them with money they didn’t have. Yet Hyundai has seen sales grow by an astonishing 23 percent this year, while Kia, its semi-autonomous budget-brand partner, has recorded 28 percent growth. Those are records for both companies.

It makes sense. Each company has a strong lineup of vehicles with few weaknesses. The Hyundai Sonata and Elantra were the ninth and 10th-best selling cars in the country last month, and the Kia Sorrento cracked the top 10 for trucks.

Behind the success of the Korean automakers lies a combination of skill, luck and ass-kicking by a man now among the world’s most powerful executives.

Here’s a few reasons for the Koreans’ good fortune:

The Kia Optima, arguably the most handsome car in its class. (Photo: Kia)

Both automakers have for the first time found a visual style that appeals to Americans. Hyundai’s curved grille and waved body creases look handsome on the Sonata and work well enough on the new Elantra and Tucson that models yet to receive the design language seem stale. The new styling may not wear well, but it’s captured the moment.

Kia used to build sedans that looked like they’d been scavenged from Jaguar’s recycling bin, but thefantastic Optima sedan (pictured above) is arguably the best-looking midsize sedan, and far better than the sea of beige coming from former champions Honda and Toyota. The 2012 Toyota Camry looks so derivative that Kia and Hyundai sedans will keep taking its lunch money.

Despite some lingering quality problems, Hyundai and Kia have surpassed the test of basic safety and dependability standards that once kept them in the last-ditch bracket with Mitsubishi and Daewoo. They also were among the first to embrace the idea that the inside of a small car should look more luxurious than the bins at airport security. The Elantra’s handling might not be as crisp as the Ford Focus or Honda Civic, but it has the best interior in the class, putting the new Civic to shame. And for the rare stories of problematic defects, Hyundai’s been quick to deal with them quickly.

Hyundai’s savvy marketing and high-concept incentives — like buying back your car if you lose your job — drew shoppers without costing a fortune. Kia’s marketing has been more annoying (Why couldn’tthe Aztecs kill those rapping hamsters?) but it’s done a great job getting Kia noticed.

You can have your Sonata with a zippy turbo or miserly hybrid drivetrain. Nearly two-fifths of the vehicles Hyundai sold in July have fuel economy ratings of 40 mpg, taking the mantle for efficient sportiness Honda lost when it built the Honda Insight hybrid. Meanwhile, there are rumors Hyundai will throw a V8 into the award-winning Hyundai Genesis coupe, challenging the traditional Detroit muscle car.

Each automaker now has a factory in the United States, and through the magic of building in the most union-resistant reaches of Dixie, they pay the lowest factory wages of any automaker in the country. That provides a cost advantage over Detroit, the Japanese and Volkswagen.

Japan’s earthquake knocked its automakers dizzy, but the Japanese also have been struck by currency changes that have whittled away profits on vehicles sold in U.S. dollars. South Korea’s currency hasn’t had such issues. And unlike Japan, whose automakers face a populace more obsessed with gadgets than cars, South Korea considers automaking a national priority, even though its roads are rarely less than bumper-to-bumper.

I keep calling Hyundai and Kia two companies, but they’re part of the same Korean conglomerate, orchaebol. Although vehicles such as the Optima and Sonata are mechanical twins and the Kia plant in Georgia also builds Hyundais, the U.S. marketing branches of each automaker are told to view each other as competitors.

Still, the two branches converge in Korea on a tree skillfully tended by Mong-Koo Chung, chairman of Hyundai Motor Group.

Mong-Koo Chung, chairman of Hyundai Motor Group. (Image: Hyundai)

Chung (pictured at right) is the scion of South Korea’s version of the Ford family. He is the country’s richest man, with a fortune of more than $2 billion, and he has overseen Hyundai’s transformation from regional steel-stamper to world-class corporation. His family’s ambitions nearly cratered Hyundai in the late 1980s when it flooded the United States with embarrassing crap cans. Kia, independent at the time, was little more than a contract builder; its oval logo is the same size as Ford’s so it could play “two for you, one for me” when building Ford Aspires.

In retreat, Chung made quality, technology and styling the company’s primary focus. He hired engineers from around the world, brought in former Audi designer Peter Schreyer to remake Kia — which Chung bought out of bankruptcy — and winning an intra-family battle for control of the Hyundai chaebol. That victory lets Hyundai buy much of its steel and parts from its own affiliates.

When other automakers face off against Hyundai and Kia, they’re also fighting a government that considers Hyundai’s success a matter of national honor. When Chung was convicted in 2007 of embezzling $110 million for illegal political donations, his three-year sentence was suspended before the government pardoned him, saying he was needed “to continue to contribute to the development of Hyundai Motor Group.” Contrast with how folks responded to saving General Motors and Chrysler…

No industry is quite as volatile as the auto industry, and Hyundai is far from perfect. Chung’s push to offer luxury cars has Hyundai dealers trying to sell $50,000 Equus sedans, an experiment still too early to judge. Korea’s labor unions make the UAW look like a quilting circle, regularly striking and locking down plants. Akio Toyoda, another auto-industry scion, has his own comeback plans for Toyota, and he’s aiming right at Hyundai.

It’s been a long drive for a company that built its first original vehicle in 1976, and an impressive feat to conquer the automotive world in just four decades. Hyundai isn’t unstoppable, but you can understand why it might look that way to people in boardrooms from Detroit to Frankfurt to Shanghai right now.

Posted in: Korea is New Japan?