Twenty years ago, Hyundai was developing the first generation Santa Fe, a crossover that helped the Korean automaker become relevant in America. And its been nearly ten years since the 2011 Sonata shed its status as an Accord clone to become something truly substantial. With that paradigm-shifting sedan firmly in the rear view mirror, Hyundai has stumbled as crossovers continue to surge in popularity. They’ve also struggled to achieve pricing parity with the Japanese. Neither of those challenges are impossible to overcome, but it will require the company to change its bad habits if it wants to survive in this era of uncertainty and technological upheaval.
The troubles facing Hyundai Motor Company have been hiding in plain sight: there is a mismatch between the products it has and the ones it needs. In China, Hyundai came in strong with a bevy of cheap vehicles that quickly got snapped up by value conscious shoppers. After a short while, the automaker decided to take the lineup in a more premium direction, which didn’t resonate with customers. And the competition began fielding their own entry level cars while Hyundai let their cheaper products whither on the vine.
Across the Pacific the story is largely the same. Hyundai, and its corporate brethren Kia, almost always undercut the competition by thousands of dollars, even in hyper competitive segments like the mid size sedan category. Those type of deals are harder to come by today, even as Hyundai tries to regain lost market share. Here is an eye opening excerpt from Reuters:
In 2007, the Sonata was 10 percent cheaper than Toyota’s popular Camry sedan but by 2014 it cost more, according to U.S. market research firm Edmund.com. Hyundai, which sold nearly 200,000 Sonatas in the U.S. market in 2010, sold just 131,803 units last year.
To a certain extent, Hyundai was justified in raising their prices from 2007 levels, as their products took a conspicuous leap in quality and refinement. That doesn’t mean customers will positively react to higher MSRP’s from a brand that established itself with bargain basement pricing. And that really is the problem. Car companies create their brands from the products they sell. Ford will probably be fine after they drop sedans because their truck and utility lineup resonates with buyers. And Subaru has struck gold by marketing the brand for people who desire “outdoorsy” type vehicles. To the average buyer, Hyundai’s products have gotten a bit better and a whole lot more expensive.
Hyundai also failed to predict the rapid rise of crossovers. Other car companies were also late to capitalize on the trend, but for Hyundai the problem partially stemmed from a uniquely Korean affinity for sedans, a trait that our own William Stopford discussed back in September. This has greatly impacted Hyundai’s effort to make inroads in the luxury market, as the Genesis division does not offer any type of crossover or utility vehicle, nor has any such product been announced.
Kia is affected by these issues as well. The company has successfully fashioned its own identity to the point where it at least looks like a quasi-independent organization on the surface. In reality, every Kia is just a Hyundai and vice versa, with few exceptions. That means a Kia problem is also a Hyundai problem. The Kia Stinger, which debuted this year, is the sixth sedan in the Korean automaker’s American lineup. And two of those models – the Cadenza and K900 – sold just under 8,000 units combined for the 2017 calendar year.
Hyundai is also under increased scrutiny to recall up to three million cars over concerns they may be prone to fires. Major recalls inevitably happen from time to time, but the difference between a faulty airbag and a vehicle that can spontaneously combust is stark. The timing is unfortunate because the Koreans continue to produce reliable cars overall, a feat that has repeatedly been recognized by Consumer Reports and other organizations that monitor vehicle quality. The issue is compounded by cars that were repaired yet still caught fire.
There appear to be many storms on the horizon for Hyundai. That doesn’t mean they’re down for the count. Crucially, their crossover lineup has received some substantial updates this year in the form of the new Santa Fe and the refreshed Tuscon. The subcompact Kona received significant praise from journalists and appears to be selling well despite being a bit late to the party. And the Kia Stinger has won over the enthusiasts too.
They’re also a bit ahead of the competition with regards to electrifying their lineup. The Kona electric, which boasts a EPA range of 258 miles, arrives next year. Tesla is the only other automaker that currently offers a fully electric vehicle capable of going over 250 miles on a single charge. The Koreans potentially have years before the competition catches up, which puts them in an extremely favorable position to be a leader in EV sales.
But competitive advantages can disappear quickly in the automotive industry. Just look at how Nissan swooped in and took over as the value leader in multiple segments. The Koreans will have to make some difficult decisions going forward about how to make Hyundai and Kia resonate with customers in the United States and China, especially as the competition remains as fierce as ever. Meeting Nissan head on is an option, but regardless of what Korea does, it needs to enact changes soon, or it risks becoming a niche automaker. Or worse.
“For Hyundai and Kia, risk goes beyond fire” – Automotive News
CC Global: South Korea – Where The Sedans Still Thrives by William Stopford
CC Visits The 2018 NY International Auto Show, Part 5: Hyundai And Kia by Edward Snitkoff