Mong-Koo Chung, head of the family-controlled Hyundai Motor Corporation, is a secretive man who chooses his few words carefully. But what he told Fortune magazine recently turned out to have a prescience even he cannot have guessed at the time.
He believes that Hyundai’s quality and technology are “head to head with Toyota at this moment… we are monitoring what is going on with Toyota all the time.”
That, of course, was before Toyota’s double-whammy accelerator/brake recall, which has knocked billions of dollars off the premier car-maker’s sales revenue and brand value. Now, Chung will be watching even more attentively because Hyundai has the most to gain from Toyota’s distress.
That’s certainly the view of Chung’s counterpart at Toyota, Akio Toyoda. When asked what he most fears, his answer is always the same: “Hyundai”.
Toyoda is not primarily thinking of market size when he describes this nightmare in the rear-view mirror; more the speed with which it has grown and adapted to changing market conditions. At the moment, Hyundai is “only” the world’s fourth largest manufacturer (it has just overtaken Ford) and is nowhere near to challenging Toyota for pole position.
But we have to remember that Toyota has taken 73 years to arrive at market leadership. By contrast, Hyundai – which means “modernity” in Korean – was founded in 1967 and provides one of those rare examples of a global brand outside the technology sector created within the last generation.
What really seems to frighten Toyoda is not so much Hyundai’s aggressive growth as its metamorphosis as a brand. To succeed globally, every car marque must sooner or later enter the cockpit of the US market: it’s the largest (or was until China overtook it at the end of last year); the most discriminating; and certainly the most affluent. By any standards, Hyundai deserved to fail when it entered it in 1986 with a single model, the Excel. Cheap and cheerful it may have been, but the build quality was so poor that the car was virtually valueless in the second-hand market. But Hyundai hung on.
What really seems to frighten Toyoda is not so much Hyundai’s aggressive growth as its metamorphosis as a brand.
Twenty-five years later, the cars still compete on price, but almost everything else about the brand has changed. The design is much slicker, and market conquest has been accompanied by a commensurate leap up the quality league table. In 2001, Hyundai was 32nd out of 37 brands in the JD Power study of new vehicle quality after 90 days’ ownership. In 2009 it was fourth, displacing Toyota as the best-ranked mass market brand in the world, and was surpassed only by Lexus, Porsche and Cadillac.
Indeed, Hyundai is on the verge of becoming an aspirational brand, and to prove the point it is about to launch its first real luxury car, the Equus.
It will be priced about $20,000 below the Audis, Mercedes and BMWs with which it will compete. Hyundai seems to have eschewed the Toyota strategy of catering for the upper market sector with a separate brand (Lexus). Corporate hubris? A brand extension too far? Maybe. The car has received glowing technical reviews and these should not be under-rated. Last year, for example, the V6 Genesis saloon – Hyundai’s most ambitious model to date – was voted North American Car of the Year. But succès d’estime doesn’t always translate into sales success: look at the Phaeton, a super de luxe model that didn’t chime with Volkswagen brand values.
And if it doesn’t? Hyundai can exploit other areas of its widely segmented model range; and speed to market with new models is one of its key assets. It also owns a controlling stake in the small-car brand Kia. While there are economies of scale in the engineering of the two ranges, sales and marketing are entirely separate – Kia appealing to a younger, sportier element of the car-driving population.
The other chapter in Hyundai’s success story has been the growing sophistication of its marketing. About a year ago the company scored a coup with its so-called Assurance programme, which stimulated trade during the recession by promising to take back new Hyundais penalty-free if buyers lost their jobs. Over here, it has been one of the biggest beneficiaries of the Government-sponsored scrappage scheme.
Perhaps one of the most telling aspects of Hyundai marketing is to be found in who’s running it. For example, Tony Whitehorn, managing director of Hyundai UK, Paul Philpott, European chief operating officer of Kia, Michael Cole, Kia’s UK md, and Simon Hetherington its marketing director, all hail from the marketing department of Toyota GB during its glory days under commercial director Mike Moran.
They will have taken some pleasure in beating Toyota at its own game. In 2009, Hyundai doubled its UK sales volume at a time when the market was down 6.4%. And Hyundai/Kia sales combined (108,850) squeezed past Toyota’s (102,595).
A word of warning, lest this sound too much of a brand fairytale. The Hyundai brand is indeed perched on the crest of a great opportunity. In Europe, provided Toyota handles its recall with tact and efficiency there is no great reason to suppose that its sales or brand image face a rout.
In the US, by contrast – where people have died and accident lawyers are at this moment drawing up multibillion dollar class-actions – who knows what the long-term damage will be? At very least, Hyundai stands to inherit some of Toyota’s formerly prized brand assets, such as quality and reliability.
But what has befallen one company in too much of a hurry to inherit the mantle of global market leadership may equally well happen to any successor. Toyoda is said to have sought solace in American business guru Jim Collins’ latest book, How the Mighty Fall. Let’s hope Chung doesn’t find himself leafing through the same pages in a few years’ time.