Hyundai Now a Contender
With Commitment to Quality, Automaker Sets Sights on Big Three, Toyota
By Greg Schneider
Washington Post Staff Writer
Tuesday, January 18, 2005; Page E01
DETROIT -- The car made a dramatic entrance, lowered by chains from the ceiling into a cloud of smoke and flashing lights. This was no curvaceous sports car debuting at the North American International Auto Show; it was an unadorned four-door sedan -- the 2006 Hyundai Sonata.
A few years ago, such hype for a Hyundai might have seemed funny, given the South Korean company's reputation for cheap, shabby products. But this week's bold unveiling of the Sonata was greeted soberly by rival U.S. automakers, who now compare South Korea to the up-and-coming Japan of the 1980s.
Hyundai Corp. is wooing and winning American consumers just when Detroit's Big Three thought they had enough of a fight on their hands trying to take back market share from the decades-long onslaught of Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. The rollout of the redesigned Sonata is a sign of how much more cutthroat the U.S. auto market could become in the next few years, with most experts convinced that China will soon follow with inexpensive products of its own.
"I think Detroit has the potential to be in serious trouble. They're just being bombarded," said Art Spinella, an auto industry expert with the consulting company CNW Marketing Research in Oregon.
Hyundai has reached this point gradually, increasing its sales for each of the past six years after stumbling badly in the 1980s with poor-quality products. Last year, the company overtook Honda and Nissan to become the world's seventh-biggest automaker. Also last year, U.S. consumers rated Hyundai and Honda as tied for second-best in overall quality in an influential J.D. Power and Associates survey -- ahead of Mercedes-Benz and behind only Toyota.
Beginning this fall, Hyundai will start producing Sonatas at its first American plant, recently completed in Montgomery, Ala. The new version of the car is bigger than either of the industry's current top mid-size sedans, the Toyota Camry and Honda Accord. It will have a suite of standard safety features unmatched by its competition, including six air bags and electronic stability control. And it is planned to have a base price below $20,000.
If Hyundai can pull off that combination, as well as keep its newly minted reputation for quality, it stands to cause serious problems not only for Detroit, but for Japanese companies as well. In fact, Hyundai Motor America chief Robert F. Cosmai repeatedly invoked Toyota and Honda while presenting the Sonata last week, never mentioning a domestic competitor.
"Hyundai is very clearly targeting Toyota -- I don't think there's any doubt in anybody's mind that Hyundai really does want to take a piece out of them," Spinella said. "And the attitude is, they'll walk over Nissan, Honda, GM and Ford in order to get there. Even if they never touch Toyota, in the meantime there'll be a whole lot of collateral damage."
Consumers will reap the rewards, because Hyundai will have to keep prices low to fuel its growth, and that will force the rest of industry to do the same, said Paul Eisenstein, publisher of TheCarConnection.com. But it's a tricky path for the Koreans to walk, he said, because car buyers won't accept any lapses in quality as Hyundai irons the inevitable bugs out of its brand-new Alabama factory.
"If they blow it with this [Sonata], if they stall in quality right now, it will hurt them in image immeasurably and will take them a long time to recover from. So they have to hit it right, right out of the gate," Eisenstein said.
Hyundai's advantage, at least at the outset, is a low cost structure. The new plant is heavily automated, and its 2,000 employees are not unionized. Detroit's manufacturers carry huge extra burdens of "legacy" costs -- health care and pensions for retirees that add more than $1,000, on average, to the cost of every vehicle -- that Asian competitors do not share.
U.S. automakers also happen to be embarking on the same mission as Hyundai, trying to make gains in the passenger car market after years of focusing on trucks and sport-utility vehicles. With loads of new products of their own, Detroit executives are wary of the redesigned Sonata.
"Sonata has always been a formidable competitor," General Motors Corp. Vice Chairman Robert Lutz said in an interview. "We take Hyundai seriously."
Lutz pointed out that GM has a Korean strategy of its own, teaming with partner Daewoo to produce the low-cost compact car Aveo. If Hyundai takes price competition to an extreme, he said, GM could always mine that relationship for more products.
At Ford Motor Co., design chief J Mays was more dismissive of Hyundai. "I suppose if price is the only consideration, they might have a good car on their hands," he said. "We think a lot more enters into [purchase decisions] than price."
But consultant Spinella, who routinely surveys current and prospective car buyers, said the public already views Hyundai and its sister brand, Kia, as more than just a low-cost option.
People are drawn to the brand as a high-value alternative to more mainstream products, he said. "We're seeing the same attitudes toward Hyundai, and to a lesser degree Kia, that we saw when doing surveys of Toyota buyers back in the '70s and early '80s. Back then it was, 'I don't want to drive my father's Oldsmobile.' Today it's 'my father's Camry.' "
Toyota spent decades figuring out the U.S. market before hitting its stride just over a decade ago; Hyundai is evolving much more quickly, adding a full lineup of SUVs and minivans by the end of next year. High fuel prices and an uncertain economy have helped spur them along and open the door for even more competition.
Earlier this month, a U.S. distributor announced plans to begin importing low-cost cars from China in the next few years. Spinella conducted a survey of 640 people who said they were thinking of buying a car, and found that nearly a third were willing to buy Chinese as long as the product was of reasonable quality.
"There isn't a huge resistance," he said. "Somebody coming in with lower price and higher content just like the Koreans did is going to wind up grabbing at least a chunk of the market."