Design drives Hyundai brand makeover

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IOL mot pic apr10 Hyundai Sonata 1 . Some love, some hate it. The Hyundai Sonata is certainly distinctive.

Oh Kwang-Teak recently spent $310 (R2460) on a haircut and beauty care at a salon in Seoul's upscale Cheongdamdong district before splashing out $1100 (R8700) at a five-star hotel, which, if asked, will fill your bath with chocolate milk. He also visited Hermes and Cartier stores, while his wife had an expensive massage.

All in the name of research.

Oh sells Hyundai cars and is part of a select group of the South Korean firm's dealers tasked with seeing first-hand what makes premium service brands tick - and applying that to Hyundai cars.

His pampering illustrates how the Asian automaker is trying to burnish a reputation for quality and banish the jibes of the past, when its Accent sub-compact was dubbed the “Accident” and its boxy Trajet seven-seater the “Tragic”.

When it started making cars four decades ago, Hyundai had to make do with borrowed designs, engines, suspension and transmission technology.

Now the world's fifth-biggest carmaker, with affiliate Kia Motors, Hyundai is the envy of global rivals, outgrowing the market during a severe industry downturn by offering stylish models at affordable prices backed by savvy, if sometimes risky, promotions and helped by a cheaper currency.

Hyundai has invested heavily to improve design and create a luxury halo around its brand, though customers are not yet queuing up to pay more because it's a Hyundai. Profit growth is not assured and the firm is taking a measured approach in capacity and new product launches.

Sean Kim, senior vice president of Hyundai's domestic marketing group, said: “We want our cars to be valued as something like Apple's iPhone, not Samsung's Galaxy.

“We want to shed the image that Hyundai makes cheap cars. Volkswagen is a volume car maker like us, but charges 10-20 percent more, and we want to be viewed as such a premium car maker.”

MORE THAN PRICE

That's where Oh's recent luxury splurge comes in.

He said: “I've never been to these places before, but now I understand why consumers like to spend there. The luxury brands don't emphasize how expensive their products are. Instead, they try to explain why they're worth it.

“Now I do the same thing. I focus more on explaining a car's history, its value and its strengths, rather than just talking about price.”

Hyundai has a track record of making bold bets.

Former top Hyundai US executive Bob Martin, recalled how the firm's US launch in 1986 exceeded all expectations.

“But by 1988 we were raising flags saying, 'These cars are not living up to expectations and the quality is sub-standard'.”

Martin recalled how Hyundai was caught in a “classic death spiral with all the symptoms of 'this is going nowhere'.”

But that quality perception was changed by a decision to introduce a 10-year or 160 000km warranty in the United States.

With the eye-catching warranty programme and incremental improvements in style and quality, Hyundai revived its US sales. By 2011 sales had grown seven-fold to 646 000 cars, giving Hyundai its best share yet of the market, 5.1 percent.

WARNING SIGNS

Hyundai chairman Chung Mong-koo is credited for leading the quality transformation since he took over in 2000.

Martin recalls Chung's obsession with quality.

“There's always a mandate for quality improvement, but this guy is a fanatic about it. When he came in, product quality went from a very important initiative to 'If you're not improving product quality, you're fired'.”

“If I had to boil it down to what are the secrets of Hyundai: One, you're not going to outwork the Koreans; that's indisputable. Two, middle management is thin. The decision-making process is quick when necessary. When the chairman says, 'We're going to do this,' it's just done. It's not like Toyota where you have consensus management. Hyundai moves at lightning speed.

“And three, the chairman. When the chairman says 'You will achieve this', that's the end of the discussion,” Martin said.

Chung still chairs a quality meeting with top executives twice a month.

He recently told his senior managers: “We do not need to build more plants. Producing eight million vehicles a year is sufficient.”

“We are already seeing signs of growing pains, and should now direct our focus on qualitative growth.”

At its Seoul headquarters, Hyundai runs a round-the-clock 'quality situation room', collecting reports of problems from around the world and relaying them to the relevant departments. This allows Hyundai to respond with quick fixes - a failure that cost bigger Japanese rival Toyota big time when it was slow to react to a huge safety issue in the United States in 2009/10.

Behind Hyundai's rapid growth also lies government support in keeping the won currency relatively cheap and insulating the domestic car market from foreign imports.

Four of every five cars sold in Korea are Hyundai or Kia, leaving foreign brands with just a 10 percent market share to fight over. But that share was less than one percent in 2000 - a warning sign for Hyundai/Kia and Korea's other smaller automakers.

Overseas sales now account for 83 percent of Hyundai's total, up from 54 percent in 2000 - a period that has seen the won weaken by just three percent, while the yen has strengthened by nearly a third, hitting rivals Toyota, Nissan and Honda.

CHINA THREAT?

Whenever Chung, 74, travels abroad he is usually seen off at the airport by his son Chung Eui-sun, Hyundai vice chairman, in a Confucian show of respect to parents.

At some stage it will be the younger Chung - Eui-sun is 41 - who will be tasked with ensuring Hyundai's renaissance is a longer-term success story. That's a tough ask at a time when Chinese carmakers are the 'new Hyundai' of old - replicating its success in being competitive through cheap labour, an undervalued currency and government support for local carmakers.

Senior Hyundai staff say the junior Chung is a details man, and will continue the mix of autocratic family ownership and professional management.

One said: “He's a very patient listener, tenacious, and he has a real insight into the auto business.

“He points out things that executives, often with two decades in the industry, fail to notice.”

Checking out a Hyundai model at last September's Frankfurt Motor Show, Volkswagen CEO Martin Winterkorn was caught on film checking the steering wheel adjustment, and saying: “Nothing rattles ... Why can they do it? BMW can't. We can't.”

ALL SIZZLE, NO STEAK?

In February, Hyundai senior managers were summoned to a secret chamber in the headquarters complex. Inside, they were asked to evaluate the design of the next-generation Genesis premium sedan due to be unveiled late in 2013. To help them gauge its merits, it was parked alongside competing BMW, Mercedes-Benz and Audi models.

Hyundai's investment in design has its rivals talking.

Honda's creative director Toshinobu Minami said: “Hyundai gave a lot of power to the design chief. Everything was done for design. Hyundai and Kia steered the company with the view that the whole company needed to focus on design with a 10-year view. Until then, it was about cost.”

Hyundai poached ex-BMW designer Christopher Chapman to head its US design centre, while Kia hired Peter Schreyer, a former Volkswagen/Audi designer.

STRONG DESIGN MESSAGE

But critics say Hyundai's aggressive design push has split customers and risks driving away as many as it attracts - not a recipe for big volume sales.

Toyota US president Jim Lentz said: “If you look at the No.1 reason somebody buys a Sonata, it's styling. If you look at the No.1 reason somebody rejects a Sonata, it's styling.

“It's very polarising, and polarising is good if you want to sell a certain volume of product.”

The re-styling of the Sonata, critics say, will not bring the sales volumes of Toyota's Camry or Corolla, or Honda's Accord or Civic. Style-wise, the Camry is seen as safe, dull and plain-vanilla, yet it's America's best-seller.

Nevertheless, Hyundai design centre head Oh Suk-geun said the company needed a strong design message to stand apart from the pack.

“In the past our designs were so quiet that people weren't able to understand what we were trying to say. Now they say our design is 'talkative' - we speak aloud and everyone recognises our design identity.”

But the push to premium hasn't won everyone over. One Seoul businessman who drives a BMW 520d said Hyundai cars were expensive, and raising prices was just a way to make customers think they were making premium cars.

“There's a limit to the Hyundai brand,” he said. “Even if it's a premium car, it's still a Hyundai.” - Reuters

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