Based on your understanding of the case, answer the followings.
Question 1
Hyundai Motor Company (HMC) went through some difficulties during the 1980s and 1990s that affected its market position and brand image, in particular its U.S subsidiary, Hyundai Motor America (HMA). Identify the problems faced by HMC and the strategies it has adopted to improve its competitive position (on both domestic and foreign markets). Discuss to what extent these strategies were successful (25 marks – 1000 words).
Question 2
Discuss and analyze the approach that Hyundai has adopted for its global strategy (20 marks – 750 words).
Question 3
Reference to the material presented in book Strategy for Business, which theory/concept that the strategies of Hyundai were based on. You need to critically justify your argument (20 marks – 750 words).
Question 4
Identify and analyze (i) the technology policy that was adopted and implemented by Hyundai and (ii) the local (i.e., Korean) and international policies that affected Hyundai’s performance (15 marks – 500 words).
CASE: SM-122
DATE: 11/14/03
Mooweon Rhee prepared this case under the supervision of Professors William Barnett and James March as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or
request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing
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School of Business.
HYUNDAI MOTOR COMPANY
We are disappointed when what we did is undervalued. But that’s the time we feel the need to do
something.
—Mong-Koo Chung, Chairman and CEO of Hyundai Motor Company
Hyundai Motor Company (HMC), the largest automobile company in Korea, went through some
tumultuous events since it entered the U.S. auto market in 1986. After a promising beginning, a
“Hyundai Car” became a synonym for a cheap car, suitable only for the lower class or a
cheapskate. The following article illustrates how miserable Hyundai’s U.S. history was:
Back in 1998, the wheels were coming off at Hyundai. Leno and Letterman
regularly made the shoddy Korean car a punch line — to jokes about Yugo. The
home office in Seoul couldn’t even recruit a seasoned American to jump-start the
faltering company. As a last resort, the Korean bosses turned to their corporate
lawyer, Finbarr O’Neill, an affable Irishman with no experience running a car
company. “We were a company looking over the precipice,” says O’Neill. “I
kept my law license intact as my insurance policy.”1
A few years ago, however, a variety of auto mass media began to publicize Hyundai’s high test
scores for content and performance. People working with Hyundai, as well as customers and
industry analysts were amazed to see the recent rapid improvement of Hyundai cars in quality
ratings and sales. For example, John Wagner, a Hyundai dealer in San Jose, was proud of but
surprised at a news release by the Insurance Institute for Highway Safety (IIHS). It stated that the
Hyundai 2001 Santa Fe sport utility vehicle earned the highest rating in the 40-mph frontal offset
crash tests conducted at the IIHS facilities. He pointed to an Auto World article, which compared
the Santa Fe with the Ford Escape, the top selling model in the SUV segment, saying, “So if
you’re doing serious cross-shopping, our advice is to escape the compact-SUV crowd in a Santa
Fe.” The highest rating of “5-stars” by the National Highway Traffic Safety Administration
(NHTSA) assigned to the 2002-3 Hyundai Sonata midsize cars was also remarkable. The quality
improvements at Hyundai, combined with its timely marketing strategies, had led to a dramatic
1 Keith Naughton, “Finbarr O’Neill: Kicking Hyundai to High Gear,” Newsweek, January 6, 2003.
Hyundai Motor Company SM-122
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2
increase in sales. Hyundai saw its U.S. sales increase 284,902 cars (a 315.8 percent rise) over
the 1998-2002 period, while the total sales of other automakers increased by 103.5 percent.
Despite this striking growth, however, HMC still observed a considerable discrepancy between
the actual and perceived quality of Hyundai cars. Optimists in HMC attributed this to an
unavoidable time lag between actual product quality and product reputation, and believed that
time will show the truth. However, many executives felt it was necessary to come up with
effective strategies to help shorten the time lag and eventually make Hyundai’s reputation
comparable to Toyota and Honda. Suk-Jang Lee, a senior manager at the business strategy and
planning team in HMC, said, “We are grappling with how to change Hyundai’s brand identity
from cost-saving car to quality-oriented car, but it is not easy.” On the other hand, some
management groups doubted the wisdom of changing Hyundai’s brand identity due to the
disruptive effects such an action might have.
HMC HISTORY AND ORGANIZATION2
HMC was established by Ju-Young Chung in 1967 as a subsidiary of Hyundai Corporation, the
biggest Korean Chaebol3 until the late 1990s. HMC increased its size by acquiring Kia Motors
(another Korean auto company) in 1998, although Hyundai and Kia continued to operate
independently. HMC was the auto sales leader in the Korean domestic market and exported
vehicles to over 190 countries. HMC operated the world’s largest integrated automobile
manufacturing facility in Ulsan, on Korea’s southeast coast. In 1995 and 1996, HMC began
production at its new Chunju plant (in southwest Korea) and Asan plant (southeast of Seoul).
With a total global production capacity of 2.4 million units per annum, Hyundai had acquired the
necessary economies of scale to compete on an equal footing with the world’s leading
automakers. As of 2002, these three plants accounted for 1.9 million units while overseas
capacity was 500,000 units, led by Hyundai’s plants in India, Turkey, and China. Hyundai also
operated eight Korean and four international research centers, including the new Hyundai-Kia
Motors Design & Technical Center in Irvine, California, which opened in February of 2003.
Hyundai’s automotive technology centers employed approximately 4,100 researchers (of which
100 were located in California), with an annual budget of 5 percent of current revenues.
In February 1986, Hyundai launched its U.S. subsidiary, Hyundai Motor America (HMA), in
Garden Grove, California, and sold its first car, the subcompact Excel, in the U.S. market. In the
early years, Hyundai concentrated its sales efforts primarily on the west and east coasts, as well
as in the southern states. In 1987, Hyundai expanded into the central portion of the United
States, opening a central region office near Chicago. As Hyundai diversified and upgraded its
product line, the company began to build nationwide operations and service networks to more
effectively serve the needs of dealers and customers. In 1988, HMA opened a $21 million,
300,000 square-foot parts distribution center in Ontario, California. A year after that, HMA
opened a $16.6 million, 342,000 square-foot office complex and parts distribution center in
Aurora, Illinois. In 1990, it moved its national headquarters to a new 18-acre site in Fountain
2 This section was written mainly based on the documents provided by HMC.
3A Chaebol is a conglomerate of many companies clustered around one holding company. The parent company is
usually controlled by one family. OUTTHERENEWS,
http://www.megastories.com/seasia/skorea/chaebol/chaewhat.htm
Hyundai Motor Company SM-122
p.
3
Valley, California. In addition to corporate offices, this headquarters also housed HMA’s
western regional office. As of 2002, Hyundai had four regional offices and approximately 600
dealerships nationwide.
In April of 2002, Hyundai broke ground in Montgomery, Alabama for its first U.S. automobile
assembly plant, a $1.14 billion investment scheduled to open in 2005 and employ 2,000 people.
The facility, to be built on 1,600 acres, was expected to produce 300,000 vehicles per year at
maximum capacity. Hyundai planed to increase the capacity to 500,000 by 2010. This plant was
regarded by Hyundai and outsiders as a key element in Hyundai’s plan to become one of the
world’s top five manufacturers by 2010. Finbarr O’Neill, the president and CEO of HMA, noted
that Hyundai would “go from having a 4-month pipeline (from Korea) to a much shorter time
period.”4 Suk-Jang Lee was also full of confidence and emphasized a symbolic advantage:
We have had a terrible experience. In 1989, we built a plant in Quebec, Canada.
But it ended in a total fiasco after only five years of operation. Now, we know
what we learned from this failure. You know, failure teaches success. I believe
Hyundai is not such a fool as to duplicate its mistake. … It is not difficult to
gather that Americans will have a stronger attachment to Hyundai “Made in
USA” than to Hyundai “Made in Korea.” Many in the U.S. younger generations
think Toyota and Honda are American cars. Even some older generations do not
know that Lexus, Acura, and Infiniti are Japanese cars. Building plant in the U.S.
played a key role. Hopefully, our new plant may contribute to producing such
illusion.
The company took a major step to becoming a full-line automotive importer/distributor in 1989
with the introduction of its midsize sedan, the Sonata. In 1995, after 10 years in the U.S. market,
the Excel was replaced by the all-new subcompact Accent. The compact Elantra sedan debuted
in 1991 as a 1992 model, and it quickly became Hyundai’s best-selling model in the U.S. In
1997, Hyundai introduced the sporty Tiburon coupe, which emerged from the Hyundai
California Design Center’s two concept roadsters, HCD-I and HCD-II. In the fall of 2000, HMA
added two new vehicles to its lineup: the Santa Fe sport utility vehicle and the XG300 sedan.
For 2002, the engine displacement of the XG300 moved from 3.0 (XG300) to 3.5 liters (XG350).
As of 2003, Hyundai marketed a full line of vehicles including six models in 16 trim levels (left
and middle columns in Exhibit 1). The vehicles were developed exclusively by HMC and were
fitted with engines and transmissions designed by the Hyundai California Design Center as well
as HMC. The right column of Exhibit 1 lists the models against which each Hyundai model
competes. “We are more likely than other automakers to throw open information on the
competing models to the public and help the potential customers easily compare Hyundai cars
with their competitors. Hyundai cars are obviously underestimated in the U.S. We have to
straighten this out before it gets worse. They should realize that Hyundai cars are competitive
goods,” said Jong-Yun Kim, a manager at the business strategy & planning team in HMC.
4 “Hyundai Counts on U.S. Assembly Plant to Boost,” Autoline, May 14, 2002.
Hyundai Motor Company SM-122
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4
EVOLUTION OF HYUNDAI LEADERSHIP AND STRATEGY
Similar to the business divisions of other Korean Chaebols, HMC was born under the
authoritarian, charismatic leadership of Ju-Young Chung, the founding chairman of HMC, and
consequently with a unified and centralized management structure. Since the initial ownership
structure was totally controlled by Ju-Young Chung and his heirs, the management and
ownership of HMC completely overlapped. Its strategic goals and decision-making processes
were dominated by the Chung family’s centralized dominance and emperorship. However, such
a patriarchal ownership and management structure allowed HMC to pursue more autonomy over
its external relationships. For example, when HMC entered into a strategic alliance with Ford,
Ju-Young Chung declined to transfer his managerial authority to Ford. Also, in 1974, HMC
picked Mitsubishi, rather than a member of the U.S. Big-3 or Toyota, as its joint venture partner
because this made it easier for HMC to secure strategic autonomy over its own technological and
market development. In addition, the full financial and personnel support from HMC’s mother
company, the Hyundai Engineering & Construction Company, which was also owned and
managed by the Ju-Young Chung, provided him with leverage to steer HMC his way. A person
who worked with HMC from 1985 to 1996 said (on condition of anonymity)5:
Not all executives are affiliated with the Chung family. We had a bunch of
talented professional managers. But they never objected to Chairman Chung’s
directions. More precisely, it was impossible to present different opinions from
Chung’s. Anyone who raised questions against Chung’s decisions should have
been prepared to be fired the next day. … I would even say that Hyundai’s entry
to U.S. market was led by Chairman Chung’s personal ambition. I agree that
without Chung’s strong drive, Hyundai’s entry to U.S. could be delayed until its
technology is comparable to the Japanese or European automakers. In fact, we
needed an expansion strategy until the late 1980s in order to be the #1 Korean
automaker and this strategy fitted well with what we call “Chung’s mode of
bulldozer leadership.” But it also seems to be true that we learned that projects
initiated through personal ambition lead to poor preparation.6
After successfully seeing HMC enter the North American market, Ju-Young Chung handed over
the Chairmanship of the Hyundai group and HMC to his younger brother, Se-Young Chung, in
1987. The new leadership infused HMC with a different organizational culture from Ju-Young
Chung’s regime. Se-Young Chung tried to inspire HMC with the new spirit of “harmonious
human relations, autonomous management, responsibility management, and equal opportunity,”7
and thus drive out the previous owner-oriented emperor leadership by delegating responsibility
and authority to professional executives and managers. The change in leadership also led to a
change in strategic focus. From 1987 to 1988, Se-Young Chung redesigned the HMC
organization with the goal of “improvement in production efficiency” by reshuffling or merging
5 Subsequent quotes in this section are from this interview unless otherwise noted.
6 Ju-Young Chung (1915-2001) made the Hyundai Chaebol Korea’s biggest business empire and is called “King
Chairman” by Korean people. His emperor leadership was also reflected in his presidential candidacy in 1992
when his campaign funds and personnel came from Hyundai. “I was not a Hyundai employee that time. I was an
election campaigner,” said a senior manager on condition of anonymity.
7 Hyundai Motor Company, Challenge for 30 Years and Vision for the 21st Century, 1997.
Hyundai Motor Company SM-122
p. 5
the division of job functions. The most noticeable change in the organization chart was
converting from a functional organization to a divisional organization, which aimed for efficient
control and evaluation, developing management motivation and ability, improving the capability
to cope with market diversification and cost reduction. These changes allowed HMC to
downsize.
The “democratization of Hyundai” was also affected by the political democratization movements
in Korean society during the late 1980s. Despite the positive effect of this societal change, most
Korean Chaebols faced a sequence of labor-management disputes. HMC was not an exception.
The HMCs first labor union was born at the Ulsan plant in 1987 and took the main role of
conveying employees’ voices to the management group. Although Se-Young Chung emphasized
that “the stable, constructive, labor-management relationship is the starting point for sustaining
growth,” HMC was drawn into the unprecedented vortex of labor strikes in 1987 and 1988,
which resulted in huge sales losses.
Moving toward the horizontal leadership required some pain. Workers’ voices
had been restrained by the previous authoritarian leadership. The new leadership
listened to their complaints and claims. This is good for HMC in spite of the
unavoidable losses. However, the intangible big problem was a loss in confidence
in Hyundai from outsiders. Dealers abroad were making phone calls to HMC
every day to complain about supply delays and consumers didn’t want to drive
cars produced by an insecure company. The image of Hyundai that Se-Young
wanted was that of a “trustworthy company” and he thought that his horizontal
leadership would have a positive effect. But this panned out badly, at least until
the mid-1990s.
In fact, HMC’s labor union had been regarded as the symbol of the Korean labor movement and
had always been in the vanguard of national walkouts. This certainly contributed to the
advancement of management-labor relations in Korea, but presented HMC with many difficulties
in implementing its strategic decisions.
In 1996, Se-Young Chung transferred the title of Chairmanship to his son, Mong-Kyu Chung.
Mong-Kyu Chung inherited not only the title but also the leadership style of his father, which
allowed HMC a smooth transition with little organizational turmoil. Furthermore, he exerted
much effort to make Hyundai a reliable company in the world, and not just in Korea. He
established a new vision for achieving a position in the world top-10 automaker ranking in the
21st century by occupying four percent of the world auto market. Thus, the primary strategic
focus was placed on “the improvement of brand image and consumer satisfaction through more
intensive product quality movement, value management, and market globalization.”8 Mong-Kyu
Chung also introduced the team system into the organization, along with greater emphasis on
performance-based compensation. From 1996 through 1998, the labor-management dispute also
quieted down, which many people attributed to “the persistent humane attitude” toward
employees over two generations, though such leadership was not working well in its early stages.
8 Ibid.
Hyundai Motor Company SM-122
p. 6
The 1997 East Asian crisis dealt a heavy blow to Korean Chaebols. Half of the top 30 Korean
Chaebols, including Daewoo, went into bankruptcy in 1997 and 1998. The Hyundai group also
suffered a liquidity crisis. In response to requests from the IMF and foreign companies, the
Korean government began to pursue a major reform of the Chaebol system and pushed Chaebols
to improve their managerial transparency and professionalism, and spin off unrelated businesses.
The Hyundai group was also pressed into an unprecedented restructuring of its businesses.
Almost 70 affiliates of the Hyundai group were spun off in 1999 and 2000. However, the
Hyundai group was susceptible to public criticism because its restructuring was focused mainly
on the distribution of property among the Chung family, rather than on the rationalization of
management.9 Among others, HMC was the prime cash cow of the Hyundai group and was
allotted to Mong-Koo Chung, chairman from 1999, first living son of Ju-Young Chung, and
older cousin of Mong-Kyu Chung. “He is the image of his father. He has led HMC to a more
hierarchical decision-making structure and he revived the bulldozer type of ‘can do’ leadership.
HMC faced several contexts asking for a timely decision-making, and his leadership helped it
work out.” However, his strategic direction and organizational structure were not entirely
different from the previous ones. In pursuit of the global top-five in 2010, he continued to
emphasize the improvement of product quality, management transparency, and brand value. The
current organization chart is shown in Exhibit 2. One emerging challenge to the new leadership
was how to cope with the warlike labor-management disputes. HMC suffered from nearly seven
weeks of labor strike in summer 2003 and caved in to virtually all the union’s demands to end
the strike. In particular, HMC allowed the labor union to participate in key management
decisions.10 “It will be interesting to see how Mong-Koo Chung’s leadership deals with the
union’s veto on important decisions.”
EVOLUTION OF THE HYUNDAI PERFORMANCE IN THE U.S.
“Hyundai is the Marv Albert of the auto industry – it’s gone from success to oblivion to
success”11 in the 17 years it had been doing business in the U.S., according to one commentator.
Mong-Koo Chung said Hyundai’s U.S. history substantiated the philosophy of his father, Ju-
Young Chung, the founding chairman of HMC: “It is failures rather than successes that teach us
invaluable lessons…. It is not necessary to remember one’s success. Those should be
remembered by others instead. Rather, we should remember our losses and failures…. Those
who forget their failures will fail again and again.”
The Initial Stage (1986 to 1988)
The U.S. customers’ response to Hyundai’s first car was immediate: they sold like hotcakes. Just
seven months after its debut in February 1986, HMA sold its 100,000th Excel. Total 1986 sales
were 168,882, an industry record for an import car distributor in its first year. Hyundai sales
averaged 1,431 units per dealer, another sales record in the U.S., despite having dealers located
in only 31 of the 50 states. In 1987, Hyundai sales continued to soar reaching a record number
9 Ki-Won Kim, “Study on the Development of Korean Chaebols,” Paper Collection of the Korea National Open
University, August, 2000.
10 Hyun-Chul Kim, “Hyundai Deal Provokes Business,” Korea Herald, August 7, 2003.
11 Fred M. H. Gregory, “Hyundai Santa Fe: South Korea’s Biggest Automaker Adds a Big Mac to Its Menu,” Car
and Driver, October 2000.
Hyundai Motor Company SM-122
p. 7
of 263,610 units and a 2.58 percent market share (Exhibit 3). Jong-Yun Kim attributed
Hyundai’s initial sales success to a favorable market structure:
The timing of our entry to the U.S. market was ideal in terms of market
segmentation. At that time, most automakers tended to produce high-end, high-
priced cars. It left a huge vacuum in the entry-level market. They needed a car
that fills in the hole. First-time car buyers such as college students and young
couples wanted a car that could satisfy their low budget. That’s the Excel.
Suk-Jang Lee added lack of information on “who is Hyundai” as another reason:
At the time, few Americans had ever heard of Hyundai and its products. Many of
them thought Hyundai was a new Japanese automaker. Some people even
regarded Hyundai as a new subsidiary of Honda because their logos are not so
discernable at the first glance (Exhibit 4) and their pronunciations sound very
similar. You know, the corporate symbol is the centerpiece of the company
identity. Therefore, Americans trusted Hyundai believing that its quality would
be comparable to Japanese cars. This was an unexpected consequence.
Moreover, there were few public and private agencies, which tested the Excel in reliable ways,
and they did not quickly make public the test results. This led potential customers to make
buying decisions by relying more on available information such as price than on hidden quality
information. “We enjoyed a honeymoon with customers. They liked our cars without knowing
us well. It gave us the blockbuster sales. But the honeymoon did not last long,” said Jong-Yun
Kim.
The Troubled Years (1989 to 1998)
It did not take long for customers to realize the Excel had severe quality problems. It was not
uncommon to see one stopped on the street with its engine blown. They often observed that car
bodies rusted fast and air conditioners did not work on hot days. In 1989, Hyundai’s sales fell to
183,261 units, a decline of 30.66 percent (Exhibit 3). Such a big drop in sales was a heavy blow
to Hyundai’s business in the U.S. HMA lost two COOs during the latter half of 1989. Dealer
profits plummeted, and a number of showcase Hyundai dealerships closed in 1989. Difficulties
in finding lenders to finance Hyundai consumer loans forced Hyundai to create its own financing
arm in 1990.
To make matters worse, J.D. Power and Associates12 began to publicize its rating of Hyundai
cars in 1990. As shown in Exhibit 5, Hyundai cars received an average quality score of 2.0 in
1990, the minimum possible.13 A joint edition of The Detroit News and Detroit Free Press
12 J.D. Power & Associates is a global marketing service firm established in 1968, and had been regarded as one of
the most popular car rating sources in the U.S.
13 The yearly quality ratings shown in Exhibit 4 were based on “Initial Ratings,” which had been released by the J.D.
Power Consumer Center. The “Initial Ratings” consisted of six scores across different criteria, and were obtained
by J.D. Power from consumer ratings of vehicles after they had owned them for a few months. Among the six
criteria, “Mechanical Quality,” “Features & Accessory Quality,” and “Body & Interior Quality,” which were taken
from the Initial Quality Study (IQS), were selected because these three criteria directly reflected problems with a
Hyundai Motor Company SM-122
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reported that the IQS (Initial Quality Study) showed Hyundai finished last out of 29 sales
divisions, with 230 problems per hundred vehicles. The Excel was among the bottom 10 car
models. The Excel models were also rated the worst cars overall for injury claims based on the
analyses of insurance coverage and claims data by the Highway Loss Data Institute. The quality
ratings provided by Consumer Reports also gave Hyundai cars a bottom score of 1.0 in 1991
(Exhibit 6).14 A senior manager in Consumer Reports said on condition of anonymity, “Why
don’t you guess why Hyundai could get a good score in 1990? Hyundai car owners didn’t want
to admit that they had made a big mistake. They just pretended that they had the ill luck to see a
problem only in their car. But they gave it up in 1991.”
All this made “Hyundai cars” a synonym for shoddy products. Shortly after becoming the
executive vice president of HMA in 1990, Rodney Hayden “got a definite feeling that the image
was ‘cheap price,’” he said in an interview. “I wanted to change that to ‘quality that was
affordable.’”15 Although Hyundai tried to regain the momentum it had in its first three years by
introducing a new package of lineups, promotions, advertising, maintenance, financing, and
dealer incentives, it was a hard trek. One week after being picked to head HMA’s new customer
satisfaction department, vice president Jack Collins left the company for Infiniti. One source
familiar with Hyundai at that time attributed the attrition to tension between HMC and HMA:
“The Koreans refuse to commit the resources necessary to turn Hyundai around. ‘Korean
Management’ is an oxymoron.”16 Hyundai’s early success gave the HMC management
unrealistic ideas about what it could accomplish in the U.S. market.
Hyundai attempted to diversify its product mix, but it was not very successful. Although the
Elantra debuted in the U.S. in 1991 to bridge the gap between the subcompact 1.5 liter Excel and
the family-sized V-6 powered Sonata, it posed a danger to Excel sales because the differentiation
between the Excel and the Elantra (powered by a 1.5 liter standard engine versus a dual overhead
cam 1.6-liter optional engine) was not great enough to be perceived by the public. HMA also
planned to introduce a prestige car in order to escape from the cheap car image, but HMC
ignored this plan because its success in domestic sales was enough to satisfy its goal. “We were
a bit satisfied with our great success in domestic market. In 1992, our goal in the U.S. market
was to maintain our share, not to increase it,” said Suk-Jang Lee.
Given this, Doug Mazza, who inherited HMA in January 1993 as a new executive vice president
and COO, put less emphasis on sales reports and more on customer satisfaction and quality
control. His efforts were aimed at raising Hyundai’s IQS scores, but he was disappointed with
the next year’s score (Exhibit 5). In 1993, a USA Today article headlined, “Dealers: Hyundai
vehicle during that ownership period. J.D. Power Consumer Center reported the scores of each model across these
three criteria on a four-point scale: ‘5”: among the best; “4”: better than most; “3”: does not really stand out; and
“2”: the rest. The case writer first calculated the mean of the three scores for each model and then created an “IR
score” in a given year by averaging those mean scores of all Hyundai models in that year.
14 The yearly “CR ratings” shown in Exhibit 5 were obtained from the 5-point scale “overall scores” in Consumer
Reports: Buying Guide, which was first published in 1936. The trouble index summarized each model’s
reliability, as reported by Consumer Reports’ own tests. The case writer calculated the mean of the overall scores
of each model, and then created a “CR score” in a given year by averaging the overall scores of all Hyundai
models in that year.
15 Kristine Stiven Breese, “Hyundai Boss Outlines Plan for Revival,” Automotive News, April 30, 1990.
16 Kristine Stiven Breese, “Hyundai Exec Leaves for Infiniti,” Automotive News, June 25, 1990.
Hyundai Motor Company SM-122
p. 9
will quit U.S. market,” reported that many car dealers believed that Hyundai had the worst
quality and customers should be prepared to wave goodbye to Hyundai. In 1994, Americans
could see TV ads where NBA player Charles Barkley opened the door of the new 1995
Sonata
model and said, “You got a problem with that?” This contributed to a slight sales increase in
1994, but sales decreased again in 1995 (Exhibit 3).
In 1995-1996, Hyundai sought to upgrade its quality image by marketing the new Accent and
Elantra models, which contributed to the rebound in the 1997 J.D. Power quality ratings (Exhibit
5) and 1996/1997 Consumer Reports quality ratings (Exhibit 6). However, the 1996 sales were
off approximately 20 percent from the previous year. The launch of the all-new Elantra did not
go well. Then seven high ranking managers walked away from Hyundai in six months. “The
Koreans still blamed the Americans for the sales fall-off, even though the problem was entirely
product-driven. So no American is ever going to have any autonomy, and that’s why everyone’s
leaving,” said one former staffer on condition of anonymity.17 However, a Korean staffer, who
insisted on anonymity, blamed the Americans for an inadequate marketing strategy: “They
(HMA) never mentioned the increased quality image in the ad campaign of the Elantra launch.”
Jong-Yun Kim conveyed the Americans’ voice: “I think most executives in HMA agreed that
Hyundai needs to disconnect its brand name from the ‘lowest-priced car’ and mount a long-term
image-building campaign. But, due to the short-term sales pressure from HMC, HMA spent all
their money on sales incentives rather than on increasing brand image.”
In 1997, Doug Mazza, the top American executive of HMA, stepped down along with John
Dorsey, vice president of sales. Myung-Huhn Juhn from HMC took over Mazza’s duties. As
Bob Martin, director of competitive strategic planning team in HMA, recalled, “We were quite
frustrated by the autocratic Korean managers blaming the Americans. They shot down our
suggestions for a turnaround.” He also quit Hyundai in 1996, but came back in 1998. Worse,
the IMF recommendations for dealing with the East Asian financial crisis led Standard & Poor’s
to warn in late 1997 that it might downgrade the credit rating of HMC. In 1998, Hyundai’s sales
tumbled below 100,000 units for the first time since it entered the United States. HMC in Korea
was also pushed into the red for the first time in nearly two decades.
The Recovery (1999 to 2003)
Hyundai was back with a rapid sales hike beginning 1999. Sales of Hyundai-branded vehicles
rose about 80 percent, Hyundai’s dealership shopping rate was the highest since 1993, and more
than double that of 1998. These trends in sales continued, with sales reaching 375,119 units in
2002. Exhibit 7 shows the sales distribution of Hyundai cars across models in 2001 and 2002.
The Elantra had been the best seller, while the proportion of Santa Fe models sold grew larger
every year and the Accent’s portion decreased. This was closely related to the changing
demographics of Hyundai buyers. Hyundai buyers had become older on average – 46 in 2003
compared with 42 in 1998. In addition, 75 percent were college educated, compared with 47
percent in 1999, and the 2003 median household income of Hyundai buyers was approximately
$52,000, compared with below $40,000 in 1998.
17 Mark Bechtin, “Hyundai in Disarray: Sales Fall Off, Staff Desertions Frustration Maker,” Automotive News, May
27, 1996.
Hyundai Motor Company SM-122
p. 1
0
Part of the reason for this turnaround seems to be that Hyundai cars’ quality ratings had steadily
increased since the mid-1990s and customers had begun to recognize Hyundai as reliable
(Exhibits 5 and 6). In particular, Exhibit 8 shows that the 2002/2003 models of the Sonata and
the Santa Fe received high quality scores from the J.D. Power and Associates and the Consumer
Reports. The 1999 absorption of Kia and the 2000 deal with Daimler Chrysler, which purchased
a 10 percent stake in Hyundai, also helped the company in terms of operation and quality,
respectively. The Santa Fe and the XGs were introduced in a bid to shake Hyundai’s image as a
maker of small, cheap cars. The new design center located in Irvine led to producing more
appealing cars to American customers and the announcement of the Alabama plant signified that
the brand was moving upscale.
Most importantly, Bob Martin pointed to the introduction of a series of bold market strategies as
the greatest contributor to Hyundai’s revival: “We could not be satisfied by just seeing our
quality increase. We had to educate customers. We needed to get the word out. We had to
effectively reveal the gap between what actually is and what people believe is. Our challenge
changed from quality to reputation.” Among other things, he emphasized two strategies of
which he was very proud.
“The Best Warranty”
In November 1998, right after the promotion of Finbarr O’Neill to president and CEO from
COO, HMA launched national commercials for what it called “the industry’s best warranty,”
which offered 10-year, 100,000-mile powertrain protection to original owners. The U.S. auto
industry was perplexed with this “crazy” tactic, but it really turned things around. Sales soared,
dealers became profitable, and Hyundai began to get accolades. A document from HMA
reported that 92 percent of the 1999 Hyundai buyers said that the warranty was one of the main
reasons they bought Hyundai. Bob Martin said:
If your wife slept with other man, how many nights shouldn’t she sleep with the
guy to recover your trust? One, two, or three nights? Nonsense. Only showing
our quality chart to them was not enough to win public confidence. We needed to
shock them. Otherwise, we had to wait a long time to have them trust us. …
Offering the best warranty, not just a better, was the best way to signal that
Hyundai has a high level of quality. … When we first turned in our warranty plan
to HMC, they thought we were insane. Some guys said Hyundai would collapse
if we launch the policy. Ironically, the autocratic culture of HMC worked it out.
We succeeded in persuading Mong-Koo Chung, so that was that. We learned that
sometimes top-down decision-making is more effective than democratic.
However, “some people in HMC are still very cautious about the good prospects. The impact of
the warranty will not be known until 2004 when the 10-year warranty model gets through the 5-
year ownership (previous warranty period of Hyundai cars),” said a HMC employee on condition
of anonymity. Scott Park, executive coordinator of strategic/product planning team in HMA
refuted this, saying:
I understand their concerns. However, we are making up for the possible loss by
selling more cars. Moreover, we priced the car and insured the warranty based on
Hyundai Motor Company SM-122
p. 1
1
a very conservative calculation. The extended warranty also pushed HMC to
concentrate more on product quality. They fully understand that the issue of the
warranty hangs on quality. I heard they are taking steps to strengthen the R&D
personnel and working harder with their suppliers to improve the quality and
durability. … At last, we found an emotional connection between Hyundai and
customers.
“The Packaging Strategy”
Bob Martin said Hyundai “also had to come up with a solution to how to avoid the cheap car
image.” In late 1998, executives in HMA began to suspect that Hyundai cars would not be able
to change their cheap car image as long as their retail prices are lower than competitors. “Given
the simple rule that a car’s price is what it’s worth, Hyundai’s low price should be interpreted as
low value. Someone asked me, ‘If you believe your car is comparable with other Japanese cars
in terms of product quality, why didn’t you increase its price?’” said Scott Park. However,
executives in HMA also recognized that one of the main reasons for buying Hyundai cars was
the price, and they were afraid of a sales loss, which would probably come from the price
increase. HMA faced a dilemma.
The solution HMA brought out was to differentiate the standard equipment of its cars from other
makers, which was called the “packaging strategy” or “value pricing” by people working with
HMA. Exhibit 9 illustrates a good example of this strategy. The manufacturer’s suggested retail
price (MSRP) of the 2003 Hyundai Santa Fe was $924 higher than that of its Toyota competitor,
the 2003 RAV4. However, many features earmarked as “standard” in the Santa Fe were
“optional” in the RAV4: manual air conditioning, power windows, power door locks, delayed
power retention system, cruise control, CD player, power adjustable exterior mirror, heated
exterior mirror, and alloy wheels. In contrast, there were no features that were optional in the
Santa Fe but standard in the RAV4. Bob Martin boasted,
Now, many people began to think the Santa Fe is just as reliable as the RAV4 due
to its price ranges and quality scores. However, the customers who shopped for
the SUV and dealers could also recognize that the Santa Fe model has the price
advantage over its competing models, as before. So the Santa Fe does not have
the cheaper car image any more, but it is indeed sold at a cheaper price. This
might sound paradoxical, but we did it very successfully.
Ironically, “This packaging strategy was learned from Japanese makers’ earlier experience.
They used this strategy when they first competed with Big-3 and German cars,” Jong-Yun Kim
added.
CHALLENGES
In spite of its drastic jump, Hyundai was not sure about whether it could retain such momentum.
First of all, Hyundai’s competitors such as Chrysler and Mazda had begun to emulate its 10-year,
100,000 miles warranty and devised a variety of promising marketing strategies. It seemed that
the advantage stemming from the warranty would disappear soon. Also, although Hyundai’s
packaging strategy helped it outgrow its cheap car image, this could be regarded as another
Hyundai Motor Company SM-122
p. 12
version of price cutting strategy and amount to no more than short-term tactics. Hyundai fully
understood that it needed a breakthrough that could lead to a fundamental upgrade of its brand
image. Hyundai judged that the key to weathering this challenge was closely related to the
restructuring of its lineup and a change in its market position. However, they were afraid to take
some strategic actions because there was great uncertainty about the possible effect of each
strategic direction.
Hyundai’s challenge came in particular from two situations facing the company. First,
Hyundai’s cars, especially the high quality models such as the Sonata and the Santa Fe, were
undervalued compared with their competing models. Exhibit 10 shows the coordinates of quality
ratings and resale values for the 2002 Hyundai Elantra and its competitors.18 The
Elantra
received higher quality scores than the Nissan Sentra, the Dodge Neon, and the Chevrolet, but
lower scores than the Honda Civic, the Ford Focus, and the Mazda Protégé. The resale value of
the Elantra was correspondent to its position in the order of quality ratings, except that the used
Nissan Sentra has a higher resale value than the Elantra, although the Elantra received a higher
quality rating than the Sentra.
However, this exception also holds true when we compare the 2002 Hyundai Santa Fe with its
competing models. As shown in Exhibit 11, the Santa Fe’s quality rating was high compared to
the Toyota Highlander and RAV4. The Santa Fe was assigned a higher score than the Mazda
Tribute, the Ford Escape, the Jeep Liberty, and the Honda CR-V. However, the 1-year resale
value of the Santa Fe was lower than that of the Escape, the Liberty, and the CR-V. Also, the
gap in the resale values between the Santa Fe and the Toyota models was much larger than their
quality gap. Given that the resale value of a used car is highly correlated with its reputation or
the collective perception of that car’s quality,19 this might imply that the market perception of the
Santa Fe’s product quality was lower than its actual quality. Suk-Jang Lee said:
In the past, we relied heavily on Mitsubishi’s technology. Now we have outgrown
it. However, people in the U.S. still think that Mitsubishi cars are better than
Hyundai cars. Here’s an interesting story. Some models of our cars and the
Mitsubishi are almost physically identical, but the Hyundai brand becomes worth
less than the Mitsubishi brand after a few years. This image loss is larger
particularly for medium-size cars. We recognize that our entry-level small cars
are not outstanding in the quality ratings, but I am proud of our medium-size cars.
However, people do not separate medium-size cars from the entry-level cars and
they tend to put them together when they judge product quality. The problem is
that they infer Santa Fe’s quality from Accent’s quality, but not vice versa. The
R&D team is complaining about the undervaluation of the Santa Fe and the
18 In Exhibit 9, the X-axis represents the average scores of the Consumer Reports rating and the J.D. Power rating
for each model, and the Y-axis represents the 1-year resale value of each model. Based on the Kelley Blue Book:
Used Car Guide, the resale value was operationalized as the “suggested retail price” of 1-year used car divided by
its original “list price,” which is then multiplied by 100. Since the price values for each model varied across
“equipment schedules” as indicated on the “equipment charts,” the price value for the “base model” of each model,
which assumed minimal equipment, was used. Also, a car model generally produced two or more sub-models
with different price values and hence an average score was calculated for each model.
19 M. W. Sullivan, “How Brand Name Affects the Demand for Twin Automobiles,” Journal of Marketing Research
(Vol. 35 1998): 154-165.
Hyundai Motor Company SM-122
p. 13
Sonata, but this is a question of product mix rather than a question of marketing
skills. I think the variation of quality among the Hyundai models is considerable
and this presents a challenge to Hyundai’s future strategy.
The second situation that presented a challenge was that Hyundai cars had relatively low prices.
Exhibit 12 shows the price ranges of the 2003 Hyundai cars and its competing models. The
maximum and minimum prices of Hyundai cars were almost the lowest in the auto industry.20
Hyundai was one of few automakers that did not offer cars priced over $30,000 in the U.S.
market. Jong-Yun Kim said, “The fact that Hyundai cannot command a $30,000-plus price in
the U.S. may lead to a misinterpretation that Hyundai should wait until its quality deserves more
than $30,000. Many people suspect that Hyundai does not have the capability to produce
expensive cars. Of course, we have it.” Interestingly, according to the scope of automaker’s
engine size (Exhibit 13), which was considered another essential criterion of auto market
segmentation,21 Hyundai’s engine capacity was comparable with Honda and Nissan, but Honda
and Nissan commanded higher prices than Hyundai. “As I understand, a car’s engine capacity
should go with the price it can ask for. But Hyundai is an outlier,” added Jong-Yun Kim. It
seemed, therefore, that the price zone occupied by Hyundai was another hurdle in upgrading its
brand reputation.
These two difficulties facing Hyundai led many Hyundai executives to suggest that Hyundai
needed to shift its focus from entry-level small cars to higher-end medium-size cars. Some
people even argued that Hyundai should withdraw its entry-level models from the market in
order to shake off its cheap car image. Others considered launching a luxury model. In fact, in
2000, HMC planned to market the Equus luxury model in the U.S., by emulating Lexus, Acura,
and Infiniti. “We thought if people see Hyundai build a car as reliable as the Japanese luxury,
they would be more inclined to buy our intermediate cars such as Sonata and XG. That plan
turned out to be premature. But now is the time to think about it again,” Jong-Yun Kim said.
In addition to overcoming its low-class brand image, Hyundai had three other important reasons
for shifting its lineup higher, although some in management seemed to doubt whether these were
proper reasons. First, many foreign automakers, in particular the Japanese automakers, had
begun to gain a price as well as a quality advantage. Scott Park explained:
In the past when the U.S. imposed a high level of import quota constraints,
Japanese carmakers such as Toyota focused only on high price cars to make large
margins. Then the Big-3 makers were also pushed to increase the prices of their
cars. This left a hole in the market and so an opportunity with Hyundai. But as
the import quota constraints are relieved, these carmakers have begun to invade
our price zone, although some people think this effect would be insignificant.
In addition, Hyundai was worried about the entry of Chinese automakers into the U.S. market in
the future. “I think the Chinese automakers will advance into the U.S. market in 10 or 15 years.
20 In Exhibit 11, the minimum price of each price range is the price of the cheapest model with a standard option.
The maximum price is the price of the most expensive model with a full option.
21 S. D. Dobrev, T. Kim, and M. T. Hannan, “Dynamics of niche width and resource portioning,” American Journal
of Sociology (Vol. 106 2001): 1299-1337.
Hyundai Motor Company SM-122
p. 14
Then we will see cars even under $8,000,” said Suk-Jang Lee. However, he also suspected that
since Hyundai’s technology was superior to the potential Chinese competitors, Hyundai’s quality
would be good enough to compensate for the price disadvantage over the Chinese automakers.
Second, Hyundai occupied a very similar market position as its brother carmaker, Kia. As
shown in Exhibit 14, Hyundai and Kia occupied almost the same zones in prices and engines.
Although they pushed a certain number of cars from the same platform to be profitable, they
wanted to be totally separate brands in the market. However, how could they be distinct brands
occupying the same market niche? “We need to avoid a fratricidal war. One way would be to
differentiate Hyundai’s market position from Kia’s. For example, Hyundai’s product mix could
move in an upward direction while Kia stays with the entry-level brand, so that Hyundai vehicles
are priced above Kia vehicles,” commented Jong-Yun Kim. However, he also worried about
Kia’s response to this scenario: “Maybe Kia people will be angry. Who wants to be satisfied
with the second-rate brand? We need a very cautious approach to this agenda. In any case, we
will need to learn how Big-3s and other Japanese automakers cope with this kind of problem.
For example, Hyundai could target older consumers based on a stylish brand image while Kia
could target younger consumers based on a sporty, active, brand image.”
Finally, the new plant in Alabama would be a tough hurdle. Suk-Jang Lee said:
We may have to give up our price advantage due to the relatively high labor and
suppliers’ costs in the U.S. This is different from the experience of Japanese and
European automakers. They moved here to avoid the high production costs in
their home countries. But Hyundai is moving here despite high costs because we
think building the U.S. plant is a key element for our long-term goal, becoming
the world’s fifth largest automaker by the end of this decade. Also, I am sure that
the Alabama plant will help us easily adapt to the U.S. trade barriers and provide
our products to consumers in a timely manner. So, we need to take the risk of
losing our price advantage.
This seemed to be one reason why the Alabama plant planned to first launch two higher-level
models: the Sonata and the Santa Fe. The company also hinted that the subsequent vehicles,
which followed these models, would be at least above intermediate class. Hyundai Mobis, which
was Hyundai’s chief supplier and would also construct a plant near Hyundai’s site in Alabama,
was targeting high-value-added businesses, including electronic steering systems, smart airbags,
intelligent brake systems, and satellite radio receivers, rather than cost-saving businesses.
However, not everyone agreed that Hyundai’s Alabama project should move away from the
lower end of the market. Hyundai planned a less labor-intensive manufacturing environment,
what it called “a highly automated production line” using as many robots as possible. Hyundai
expected to employ only about 2,000 workers at its Alabama plant, which was far below the
average number of employees of other U.S. plants after controlling for the scale of production.
Thus, some officials insisted that the Alabama project should not deprive Hyundai of its price
advantage.
Hyundai Motor Company SM-122
p. 15
Organizational Politics
The strategic market challenges discussed above were complicated by interorganizational
conflicts among the HMC management, the labor union, and HMA. First, Hyundai’s strategy of
moving upward in its car price zone was strongly enforced by lack of cost competitiveness based
on cheap labor. A high rank manager in HMC said: 22
I would say that the salary of plant workers in HMC has recorded the highest
increase rate within the Korean labor group. Today, their salary is even higher
than the CEO of most small or medium-sized companies in Korea. It is
imperative to increase our car price for survival. … I don’t agree that we should
be worried about the expected high labor cost of the Alabama plant, because the
salary of our plant workers in Korea would not be lower than that of Alabama
workers. Rather, the frequent shutdown of plant operations due to strikes pushed
us to find plant sites abroad. This means that the more strikes, the more
unemployed, though strikes bring them (plant workers) higher wages in the short
term. This is a war without a winner. … Last week, we granted them the right to
veto our critical strategic decisions in order to stop their strike of the last seven
weeks. I am concerned that they may try to check the Alabama project.
A member of HMC labor union expressed an opposing opinion:
I don’t understand why the management group blames Hyundai’s strategic
difficulties on the labor union. They should give up relying on cost savings from
cheap labor. I am informed that our labor productivity is comparable to the U.S.
Big-3 makers. Then we are entitled to request a comparable wage level.
However, I am not sure whether our management group, including marketing and
financing, has proved comparable capability. If not, the current strategic
problems should be attributed to them, not to us. … They feel uneasy about our
right to veto their managerial decisions. They argue that the labor unions of U.S.
automakers are not deeply involved in the managerial decision-making process.
But unions in the German automakers do have an important role in the decision
process.
The HMA was also dissatisfied with the labor group’s unreliable production activity. A person
from HMA said, “U.S. newspapers reports Hyundai’s strike day after day. It is natural for U.S.
customers to perceive that our production system is quite unstable due to the repeated labor-
management disputes. This certainly hurts our brand value.” However, another interviewee
from HMA pointed out that the current dependent relationship between the HMC management
group and HMA was a more critical organizational challenge. He said:
Officially, we are supposed to have much control over decisions on market and
technological strategies. But we don’t have control. We have come up with some
good ideas, but we quickly give them up because we know that it will take a long
22 Quotes in this section come from interviews with four Hyundai employees (one from HMC management group, one from
HMC labor union, and two from HMA). They all insisted on anonymity.
Hyundai Motor Company SM-122
p. 16
time for the ideas to be accepted by the HMC management group. Even when a
proposal is accepted, we usually find that the idea is outdated. I understand that
HMC people have been accustomed to top-down leadership and they try to
control us since they regard us as a subordinate organization. But they should
recognize that such a subordinate relationship is a drag on us in pursuit of
globalization and time management. We need to learn from the experience of
other foreign makers, such as Toyota and Honda, about how to cope with cultural
gaps in leadership and decision-making.
A CONCLUDING REMARK
It seemed clear that Hyundai should decide on a fundamental solution leading to upgrading its
brand image. On the one hand, the solution was almost certainly related to shifting Hyundai’s
market position in an upward way. On the other hand, some Hyundai officials were skeptical of
the prospect of this move in consideration of its potential negative effects. How could they best
resolve these contradictions?
Hyundai Motor Company SM-122
p. 17
Exhibit 1
Lineup of Hyundai Models and Competitors in 2003
Hyundai Models Competitors’ Models
Accent 3-Door, Accent GL 3-Door Accent
Accent GL 4-Door
Toyoda ECHO 4-door Sedan
Chevrolet Cavalier Sedan, 2003 Dodge Neon SE
Ford Focus LX Sedan – 200A, Honda Civic Sedan DX 5-spd MT Elantra GLS
Mazda Protegé DX, Nissan Sentra XE, Toyota Corolla CE
Chevrolet Cavalier LS Sedan, Dodge Neon SXT
Ford Focus ZX5 – 600A, Honda Civic Sedan LX 5-spd MT
Elantra
Elantra GT 5-Door
Mazda Protegé LX, Nissan Sentra GXE, Toyota Corolla S
Chevrolet Malibu LS, Dodge Stratus Sedan SE, Toyota Camry LE
Ford Taurus LX Standard Sedan – 100A, Nissan Altima 2.5
Honda Accord Sedan DX 5-spd MT, Mitsubishi Galant DE
Sonata Sedan
Pontiac Grand Am SE Sedan, Saturn L-Series Sedan L200
Chevrolet Malibu LS, Dodge Stratus Sedan ES, Toyota Camry LE V6
Ford Taurus SES Standard Sedan – 300A, Nissan Altima 2.5 S
Honda Accord Sedan LX V-6 5-spd AT, Mitsubishi Galant ES V6
Sonata GLS
Pontiac Grand Am SE1 Sedan, Saturn L-Series Sedan L200
Chevrolet Malibu LS, Dodge Stratus Sedan ES, Toyota Camry SE V6
Ford Taurus SEL Deluxe Sedan – 400A, 2003 Nissan Altima 2.5 SL
Honda Accord Sedan EX V-6 5-spd AT, Mitsubishi Galant LS V6
Sonata
Sonata LX
Pontiac Grand Am SE1 Sedan, Saturn L-Series Sedan L300
Chrysler 300M Sedan, Honda Accord Sedan LX V-6 5-spd AT
Nissan Altima 2.5 S, Nissan Maxima SE XG 350 Sedan
Toyota Avalon XL, Toyota Camry LE V6
Chrysler 300M Sedan, Honda Accord Sedan EX V-6 5-spd AT
Nissan Altima 3.5 SE, Nissan Maxima SE
XG 350
XG 350 L
Toyota Avalon XL, Toyota Camry SE V6, Toyota Camry XLE V6
Acura RSX 5-speed MT, Honda Civic Coupe DX 5-spd MT Tiburon Base
Mitsubishi Eclipse RS, Pontiac Sunfire Coupe, Toyota Celica GT
Acura RSX Type-S 6-speed MT w/ Leather, Honda Civic Coupe DX 5-spd MT
Mitsubishi Eclipse RS, Pontiac Sunfire Coupe
Tiburon
Tiburon GT V6
Toyota Celica GT Pontiac Sunfire Coupe
Ford Escape XLS 4X2 Value – 100B, Honda CR-V LX 2WD 4-spd AT
Jeep Liberty Sport 2WD, Mazda Tribute DX I4, Toyota RAV4 4-Door 4X2 Santa Fe Base
Saturn VUE FWD 4, Toyota Highlander Sport Utility 4X2
Ford Escape XLS 4X2 Sport – 110B, Honda CR-V LX 2WD 4-spd AT
Jeep Liberty Limited 2WD, Mazda Tribute LX V6, Saturn VUE FWD V6 Santa Fe GLS 2.7L
Toyota Highlander Sport Utility V6 4X2, Toyota RAV4 4-Door 4X2
Ford Escape XLS 4X4 Popular – 220B, Honda CR-V LX 4WD 5-spd MT
Jeep Liberty Sport 4WD, Mazda Tribute LX V6 4WD, Saturn VUE AWD V6 Santa Fe GLS 2.7L 4WD
Toyota Highlander Sport Utility V6 4X4, Toyota RAV4 4-Door 4X4
Ford Escape XLT 4X4 Popular 2 – 400B, Honda CR-V EX 4WD 5-spd MT
Jeep Liberty Limited 4WD, Mazda Tribute ES V6 4WD, Saturn VUE AWD V6
Santa Fe
Santa Fe LX 4WD
Toyota Highlander Limited V6 4X4, Toyota RAV4 4-Door 4X4
Source: Hyundai Motor Company
Hyundai Motor Company SM-122
p. 18
Exhibit 2
Organization Chart of HMC
Chairman & C.E.O
President & C.E.O
Planning &
Coordination
Division
Planning &
Coordination
Department
Auditing
Part
Planning
Supervising
Part
Information
Technology
Division
Information
Technology
Center
Chines
e
Busines
s
Division
Product
Planning
Division
Product
Planning
Department
Marketing
Management
Division
Foreign
Marketing
Department
Domestic
Marketing
Department
Quality
Management
Division
Quality
Management
Department
Purchase
Management
Division
Purchase
Management
Part
Purchase
Management
Department
Purchasing
Parts 1~3
Research &
Development
Division
Linear
Development
Center
R&D Planning
Part
R&D
Supporting
Part
Pilot Center
Electronic
Development
Center
Product
Development
Center
After Service
Division
After Service
Departments
Design Center
Power Train
Research Center
Sohari
Research Center
Test Center
Source: Hyundai Motor Company
Hyundai Motor Company SM-122
p. 19
President & C.E.O
Corporate Planning &
Administration
Part
Public
Relations Part
Management
Supporting
Division
Financial
Management
Division
Financial
Management
Department
Domestic
Business
Division
Business
Supporting
Department
Foreign
Business
Division
Woolsan
Plant
Supporting
Part
Woolsan
Sub-plants
Transmission
Plant
Auto Parts
Plant
Sheet
Plant
Production
Appliance
Part
Asan
Plant
Production &
Development
Division
Production &
Development
Department
Commercial
Vehicle
Division
Production
Technology
Center
Tooling
Center
Sal
es
Part
Junjoo
Plant
Commercial
Vehicle
R&D Center
Hyundai Motor Company SM-122
p. 20
Exhibit 3
Sales of Hyundai Cars 1986-2002
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2002
Year
S
al
es
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
m
ar
ke
t
sh
ar
e
total sales of Hyundai market share
Compiled from: Automotive News, 1986-2002.
Hyundai Motor Company SM-122
p. 21
Exhibit 4
Corporate Logos of Hyundai and Honda
( ~ 1992)
(1993 ~ )
Source: Hyundai Motor Company
Hyundai Motor Company SM-122
p. 22
Exhibit 5
J.D. Power Quality Ratings of Hyundai Cars 1990-2003
1
1.5
2
2.5
3
3.5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
2003
Year
J.
D
P
o
w
er
Q
u
al
it
y
R
at
in
g
s
Compiled from: J.D. Power Consumer Center, 2003.
Hyundai Motor Company SM-122
p. 23
Exhibit 6
Consumer Reports Quality Ratings of Hyundai Cars 1990-2003
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
C
R
r
at
in
g
Compiled from: Consumer Reports: Buying Guide, 1990-2003.
Hyundai Motor Company SM-122
p. 24
Exhibit 7
Sales Distribution of Hyundai Models 2001/2002
Elantra, 111,293 (32%)
Accent/Excel, 79,480 (23%)
Sonata, 62,385 (18%)
Tiburon, 19,176 (6%)
XG350, 17,884 (5%)
Santa Fe, 56,017 (16%)
2001
Accent/Excel, 71,488 (19%)
XG350, 16,666 (4%)
Tiburon, 19,963 (5%)
Sonata, 68,085 (18%)
Elantra, 120,638 (33%)
Santa Fe, 78,279 (21%)
2002
Compiled from: Automotive News, 2002-2003.
Hyundai Motor Company SM-122
p. 25
Exhibit 8
Quality Ratings of Hyundai Models 2002/2003
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Accent Elantra Tiburon Sonata XG350 Santa Fe
Models
A
ve
ra
g
e
o
f
C
R
R
at
in
g
s
an
d
J
.D
P
o
w
er
In
it
ia
l Q
u
al
it
y
R
at
in
g
s
2002
2003
Compiled from: J.D. Power Consumer Center, 2003. J.D. Power & Associates; Consumer Reports: Buying Guide,
2002-2003.
Hyundai Motor Company SM-122
p. 26
Exhibit 9
Comparison of Hyundai and Toyota SUVs
2003 Hyundai Santa Fe
Base
2003 Toyota RAV4
4-Door 4X2
Price
MSRP $17,549 $16,625
Destination Charge $590 $510
Interior
Manual Air Conditioning Standard Optional
Automatic Climate Control Not Available Not Available
Rear HVAC Ducts Standard Standard
Interior Pollen/Particle/Dust Air Filter Not Available Standard
Power Windows Standard Optional
Power Door Locks Standard Optional
Front Bucket Seat Standard Standard
Driver Multi-Adjustable Power Seat Not Available Not Available
Second Row Folding Seat Standard Standard
Second Row Split Bench Seat Standard Standard
Rear Passenger Easy Entry Seat Not Available Not Available
Leather Seat Not Available Optional
Reading or Map Light Standard Standard
Delayed Courtesy Light Standard Standard
Illuminated Vanity Mirror Not Available Not Available
Delayed Power Retention System Standard Optional
Front Power Outlet Standard Standard
Tilt Steering Column Standard Standard
Cruise Control Standard Optional
Tachometer Standard Standard
Trip Computer Not Available Not Available
Door Mounted Storage Standard Standard
Lower Console Storage Standard Standard
Seatback Storage Standard Standard
Cupholders Standard Standard
Remote Decklid or Tailgate Release Not Available Not Available
Traction Control Not Available Not Available
CD Changer Not Available Optional
Power Sunroof/Moonroof Not Available Optional
Entertainment, Communication & Navigation Equipment
AM/FM Radio Standard Standard
CD Player Standard Optional
Cassette Player Not Available Standard
Power Radio Antenna Not Available Not Available
Exterior
Power Adjustable Exterior Mirror Standard Optional
Heated Exterior Mirrors Standard Optional
Interval Wipers Standard Standard
Tinted Glass Standard Standard
Automatic Headlights Not Available Not Available
Rear Window Defogger Standard Standard
Alloy Wheels Standard Optional
Tire Detail SBRP225/70R16, All-Season Tires
SBRP215/70R16, All-Season
Mud and Snow Tires
Underbody Tire Carrier Standard Not Available
Metallic Paint Standard Standard
Safety
Driver Airbag Standard Standard
Passenger Airbag Standard Standard
Side Airbags Standard Not Available
Passenger Air Bag Cutoff Not Available Not Available
Automatic Locking Retractor Standard Standard
Seat Belt Height Adjuster Standard Standard
Child Safety Door Locks Standard Standard
Trunk Anti-Trap Device Not Available Not Available
Side Guard Door Beams Standard Standard
Vehicle Anti-Theft Optional Optional
Keyless Entry (Remote Lock/Unlock) Optional Optional
Hyundai Motor Company SM-122
p. 27
Performance
Manual Transmission Standard Standard
Automatic Transmission Optional Optional
RPM at Peak Horsepower 138@5500 148@6000
RPM at Peak Torque 147@3000 142@4000
Displacement CC 2351 1998
Bore X Stroke 3.41 X 3.94 3.39 X 3.39
Compression Ratio 10 9.8
4 Cylinder Engine Standard Standard
6 Cylinder Engine Not Available Not Available
8 Cylinder Engine Not Available Not Available
10 Cylinder Engine Not Available Not Available
12 Cylinder Engine Not Available Not Available
Fuel Type Unleaded Unleaded
4 Wheel ABS Brakes Optional Optional
Brakes (Front) Disc Disc
Brakes (Rear) Disc Drum
Front Suspension Independent Independent
Rear Suspension Independent Independent
Stabilizer Bar Standard Standard
4 Wheel Drive Not Available Not Available
Transfer Case Not Available Not Available
Driveline Front Wheel Drive Front Wheel Drive
Power Steering Standard Standard
Steering Diameter (Left) 37.1 35.4
Steering Diameter (Right) 37.1 35.4
Extended Service Interval Not Available Standard
EPA Mileage Estimate
Fuel Economy City 20 25
Fuel Economy Highway 27 31
Combined Fuel Economy 23 27
Warranty
Basic Months 60 36
Basic Miles 60000 36000
Powertrain Months 120 60
Powertrain Miles 100000 60000
Corrosion Perforation Months 60 60
Corrosion Perforation Miles 100000 UNLIMITED
Dimensions, Weights, Capacities
Doors (Standard) 4 4
Doors (Maximum) 4 4
Standard Seating 5 5
Maximum Seating 5 5
Optional Seating Not Applicable Not Applicable
Tires 225/70R16 215/70R&16
Wheelbase 103.1 98
Ground Clearance 7.4 6.3
Curb Weight Automatic (lbs) 3574 2777
Curb Weight Manual (lbs) 3494 2711
Standard Payload (lbs) 1376 1235
Maximum Payload (lbs) 1376 1235
Standard GVWR (lbs) 4870 3946
Maximum GVWR (lbs) 4950 3946
Track Width Front (in.) 60.7 59.3
Track Width Rear (in.) 60.7 59.1
Fuel Capacity 17.2 14.7
Front Headroom (in.) 39.6 41.3
Second Row Headroom (in.) 39.2 38.3
Front Legroom (in.) 41.6 42.4
Second Row Legroom (in.) 36.8 32.6
Front Shoulder Room (in.) 56.3 54.1
Second Row Shoulder Room (in.) 56.5 53.7
Front Hiproom (in.) 54.4 53.4
Second Row Hiproom (in.) 54 46.5
Length (in.) 177.2 166.2
Width (in.) 72.7 68.3
Height (in.) 66 65.7
Source: Hyundai Motor Company
Hyundai Motor Company SM-122
p. 28
Exhibit 10
Quality Ratings and Resale Values of 2002 Hyundai Elantra and Competitors
Chevrolet Cavalier
Ford Focus
Mazda Protege
Dodge Neon
Honda Civic
Hyundai Elantra
Nissan Sentra
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
2.00 2.50 3.00 3.50 4.00 4.50 5.00
Average of CR Ratings and J.D Power Initial Quality Ratings
R
es
al
e
V
al
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e
Compiled from: J.D. Power Consumer Center, 2003. J.D. Power & Associates; Consumer Reports: Buying
Guide, 2002-2003; and Kelley Blue Book: Used Car Guide, 2003.
Hyundai Motor Company SM-122
p. 29
Exhibit 11
Quality Ratings and Resale Values of the 2002 Santa Fe and Competitors
Jeep Liberty Honda CR-V
Toyota RAV4
Toyota Highlander
Mazda Tribute
Ford Escape
Hyundai Santa Fe
78.00%
80.00%
82.00%
84.00%
86.00%
88.00%
90.00%
92.00%
94.00%
96.00%
2.00 2.50 3.00 3.50 4.00 4.50 5.00
Average of CR Ratins and J.D Power Initial Quality Ratings
R
es
al
e
V
al
u
e
Compiled from: J.D. Power Consumer Center, 2003: J.D. Power & Associates; Consumer Reports: Buying
Guide, 2002-2003; and Kelley Blue Book: Used Car Guide, 2003.
Hyundai Motor Company SM-122
p. 30
Exhibit 12
Price Ranges of 2003 Hyundais and Competitors
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Toyota
Saturn
Pontiac
Nissan
Mitsubishi
Mazda
Jeep
Honda
Ford
Dodge
Chrysler
Chevrolet
Acura
Hyundai
A
u
to
m
ak
er
s
Price Range
Compiled from: Kelley Blue Book: New Car Guide, 2003.
Hyundai Motor Company SM-122
p. 31
Exhibit 13
Engine Scopes of 2003 Hyundais and Competitors
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Toyota
Saturn
Pontiac
Nissan
Mitsubishi
Mazda
Jeep
Honda
Ford
Dodge
Chrysler
Chevrolet
Acura
Hyundai
A
u
to
m
ak
er
s
Engine Scope
Complied from: Kelley Blue Book: New Car Guide, 2003.
Hyundai Motor Company SM-122
p. 32
Exhibit 14
Price Ranges and Engine Scopes of 2003 Hyundais and Kias
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Kia
Hyundai
A
u
to
m
ak
er
s
Price Range
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Kia
Hyundai
A
u
to
m
ak
er
s
Engine Scope
Compiled from: Kelley Blue Book: New Car Guide, 2003.
