Skuzzy

Knowledge@Wharton

As American automakers struggle for survival, South Korea's Hyundai Motor appears to be gaining on the pack with bold marketing and broad-based initiatives to improve quality. The company made a splash earlier this year when it unveiled its Hyundai Assurance program allowing customers to return a car if they lost a job. Competing automakers and other types of businesses soon followed with similar promises.

Years earlier, however, Hyundai had already begun to invest in new models and quality programs that have put the company on solid footing to profit from the current chaos in the global auto industry, according to Wharton faculty.

"There's a sense that what Hyundai is doing on many fronts is working in terms of actually gaining some advantage during the crisis," says Wharton management professor John Paul MacDuffie, who specializes in the automotive industry and is co-director of the International Motor Vehicle Program.

In 2008 -- a brutal year for the auto business -- Hyundai's global unit sales rose 2%, lifting revenues by 5%. In the first three months of this year, the company's global market share rose to 4.7%, compared to 4% a year earlier.

MacDuffie says Hyundai first made a name for itself in the United States in the late 1980s when it exported the low-cost Excel to the American market. The car was popular at first, but soon earned a reputation for developing rust and other quality problems. "Sales dropped and it left reputational damage in consumers' minds," according to MacDuffie. In the 1990s, Hyundai attempted to introduce a range of high-priced vehicles into the U.S. market, but MacDuffie says the company was "haunted" by its reputation: "Quality has always been Hyundai's Achilles heel in ... the U.S."


It was another economic crisis -- the 1997 Asian financial collapse -- that sowed the seeds for Hyundai's recent success, according to MacDuffie. He notes that during that global economic slump, the South Korean currency fell sharply. As a result, Hyundai's competitor Daewoo went into bankruptcy and Hyundai was able to acquire another Korean automaker, Kia Motors. Surviving consolidation in its home market, Hyundai emerged from the crisis with new strength to address its problems.

Risky Moves

Beginning in 2001, MacDuffie says, Hyundai launched a major push to upgrade quality with a daily focus on improvement through new processes at its manufacturing plants, and from better design and engineering. At the same time, to help overcome its reputation for poor quality, the company announced a 10-year, 100,000-mile warranty. The Hyundai program was far more comforting than the industry's standard three-year, 30,000-mile warranty, and essentially guaranteed the car for its entire expected working life.

"It was risky, but a powerful impetus to improve quality," says MacDuffie. "They pulled it off and it helped them make a major jump forward." This year, Hyundai's Genesis was named 2009 Car of the Year by independent automotive journalists at the North American International Auto Show in Detroit.

Meanwhile, as it was working to improve quality, the company also was expanding in Europe, the United States and in developing markets. MacDuffie notes that the Hyundai Sonata was selected to be the official taxicab during the Beijing Olympics and the company has been more successful than some of its Japanese competitors in gaining market share in India and China. "That's another risky, big bet that has paid off well for them," he says.


In January, Hyundai grabbed attention in the United States as consumers were reeling from the collapse in housing and stock market prices and growing fears of unemployment, by offering to take back a car that is financed or leased by a worker who subsequently loses a job. When it was introduced, the Hyundai Assurance program was seen as more than just a marketing campaign, but also as psychological affirmation that the economy was not going to collapse entirely.

"What they are doing is empathizing with the plight of people who are struggling," says Wharton marketing professor David J. Reibstein. He observes that the Assurance program is similar to the warranty that Hyundai used to build confidence among consumers. "There might be hesitancy to buy because people don't know if they will be employed, but this provides the safety net which allows them to say, 'I can still afford to be in the market.' Clearly, the market needed some stimulation and Hyundai was able to provide that stimulation."

Analysts proclaimed the program a success when Hyundai reported U.S. sales were up 14% in January compared to the same month a year earlier, while the entire U.S. auto market fell 37%.

Reibstein says the offer was a groundbreaking concept, which was later adopted by other companies. The idea might be used successfully in other industries to inspire confidence among consumers, he adds. Big-ticket durables would likely benefit the most, although he says the idea might also succeed in real estate. Pfizer has a similar program assuring the users of its products that they will be able to continue to receive medication if they lose their jobs. "It won't work with every product," explains Reibstein. "It's got to be a product with greater risk. What this strategy does is reduce the risk to the customer."

John Zhang, another Wharton marketing professor, agrees the program was a good move by Hyundai. He adds that the company's U.S. customers, who tend to buy cars at lower price points, may be more affected by the recession than other carmakers' customers. "Economic uncertainty and layoff threats will certainly make customers think twice before they purchase a new car," he says. "Hyundai's offer will convince those on the fence to jump over now."

In addition, the program is likely to generate strong goodwill toward the company. "Hyundai scores a huge publicity point, by being compassionate towards [those who are] down and beaten," according to Zhang.

In another surprising marketing move, the company last month offered to send buyers of some Hyundai models up to $333 a month for six months. The catch: The deal applies only to cars on which Hyundai is offering rebates. Buyers may opt for either the rebate or the monthly check (not both), and the value of the two offers is about equal. But such programs tend to generate consumer buzz.

Wharton management professor Lawrence G. Hrebiniak says Hyundai's success is the result of a cohesive strategy clearly designed to differentiate the firm from its competitors, combined with a willingness to make substantial investments to carry out the plan.

Hrebiniak adds that the company is now taking a lead in endorsing new, tougher environmental standards for the industry: It has promised to meet new federal energy standards requiring that cars get 35 miles per gallon of gasoline five years ahead of the 2020 deadline. "Something like that is just one more part of differentiation strategy -- to say, 'We're cool. We're high quality people,'" says Hrebiniak. "It's all on TV. They won Car of the Year. They are the first mover in helping people in trouble get over the hump and now they are a leader when it comes to the environment."

Hyundai is not afraid to spend money to reap benefits down the line, Hrebiniak notes. "Here's a company that no one really knew about other than it was a South Korean company that made cheap cars. They're biting the bullet and investing a lot in research and development and advertising while also improving quality, and letting people know that they will be there for them if they need help."

The Chairman: A Revered Convict

MacDuffie says the Hyundai's ability to take bold actions may lie in its structure as a family-run company that is dominated by its chairman, Chung Mong-koo. Hyundai Corp., the automaker

Saki GT

Bottom line: quality product, for less money than the competition, marketed well.

FrostyWinters

It's the 1970's again. Only this time the cars are from Korea.

beanseff

thanks for the clifnotes....around my area i see a boat load if the small hatches, the accent i think, there not that bad looking, but i've driven one and they're SLOOOOOOW, it can't get out of it's own way

NFRs2000NYC

Yup, I agree. The Genesis sedan is a phenomenal car.

TheDonEffect

Pretty solid lineup of cars at solid prices, great warranty, good market positioning. Unfortunate though the gen coupe doesn't weigh less .

Presto123

The Gen sedan and Coupe are very nice looking. Sedan is a lot of value for the money with the v8. With the coupe... there are better choices IMO.

Rednine

Plus don't forget 'dumping.' They have been fined in Canada if I remember correctly.

Or their dollar.

Or the fact only 3,000 cars are allowed to be imported into S Korea each year.

Wake up and smell the coffee. They pay their workers shit, take advantage of the currency situation and haul our dollars out of the country.

Now go do yourself a favour and find a 70,000 mile used Hyundai and drive it. The frickin things fall apart. Why do you think their re-sale value sucks?

Skuzzy

[QUOTE=Rednine,Jun 17 2009, 11:01 AM] Plus don't forget 'dumping.' They have been fined in Canada if I remember correctly.

Or their dollar.

Or the fact only 3,000 cars are allowed to be imported into S Korea each year.

Wake up and smell the coffee. They pay their workers shit, take advantage of the currency situation and haul our dollars out of the country.

Now go do yourself a favour and find a 70,000 mile used Hyundai and drive it.

Karl O.

Did they mention the large number of cars Hyundai is dumping off to fleets? Sonata sales are so far below targets they've had to make that thing THE rental car darling.

Not that it's a bad car, but I think all these revelations about Hyundai's fabulous success are slightly overwrought.