Once maligned, Hyundai aims to conquer US market

Korea's No. 1 automaker has the world's most reliable car - and a new US plant.

Hyundai Motor Company collided head on with the demanding expectations of US buyers after entering the North American market in the late 1980s. Critics called Hyundai's inexpensive compacts, "Cars that make trouble" - a play on the company's slogan, "Cars that make sense." Sales fell precipitously.

No more. These days, Hyundai is winning international accolades for design and reliability as it battles to catch up with Japanese, European, and American rivals on global markets. Its mid-sized Sonata was just rated the most reliable car in the US market, according to Consumer Reports.

Now Hyundai is poised to make an even bigger splash on the US scene. Earlier this month, Korea's No. 1 automaker opened a $1.1 billion plant in Montgomery, Ala., designed to crank out up to 300,000 cars a year. It's expanding at a rate reminiscent of the inroads Japanese cars made over the past two decades. The rise of Hyundai and other Korean car manufacturers is being eyed by China, which dreams of bringing its fledgling auto industry to the world stage some day.

"The quality of Korean cars is increasing dramatically," says Peter Underwood, an independent consultant and analyst of the Korean motor vehicle industry. "They're making the Japanese concerned. They're getting better all the time. They're at the point where they can charge more."

Chinese manufacturers currently compete only on their own turf, selling low-priced vehicles to buyers who cannot afford foreign cars. "It's a big industry that's expanding," says Mr. Underwood, But, he says, "Whether it's a five- or 10-year time frame, the Koreans ought to be worried."

For now, however, Korean manufacturers are riding a wave of international success, defying the downward drag of a weakening dollar that means cars cost more to make in Korea and sell for less in the US.

It's against this backdrop that Hyundai Motors has begun production at the Montgomery plant - its boldest foreign move so far. It's Hyundai's first foray into manufacturing in North America since its disastrous venture in the Quebec ski resort town of Bromont. It opened and closed a plant in Bromont within three years in the early 1990s, amid problems with quality control and positioning in the crowded US and Canadian markets.

The Montgomery plant is one major reason why Hyundai Motors is setting its sights on worldwide sales of 2.5 million vehicles this year, up 14.6 percent from last year, reflecting a 58 percent jump in sales overseas. And Kia, which Hyundai bought in 1998, is aiming to sell 1.4 million vehicles this year, up from 1.1 million last year.

"Considering the weakening dollar trend, we will face a tremendous challenge," says Kim Jae Il, senior executive vice president at Hyundai for international operations. "Given our consistent climb up the quality charts, and our aggressive investment in R&D, we are tremendously confident."

The current obsession with safety and reliability reflects the influence of Chung Mong Koo, eldest surviving son of the late Hyundai Group founder, Chung Ju Yung. Chung Mong Koo took over in 1999.

"Chung Mong Koo made quality a top priority," says Oles Gadacz, who reported for more than 20 years on the Korean motor-vehicle industry before going to work as a manager in the Hyundai headquarters two years ago. "When he took over, there were 100 people in the quality-assurance department. Now there are 1,000. He took a very systematic perspective."

After pumping $200 million into research and development in the US over the past two years, the approach appears to be paying off. In rating the Sonata No. 1, Consumer Reports this month said owners reported only two problems per 100 vehicles made in 2004 in the first year after buying them. The Sonata, wrote Consumer Reports, is "establishing Hyundai's remarkable turnaround from one of the least reliable brands to one of the best."

Overall, Korean automakers tied Japanese luxury nameplates Lexus and Infiniti with an average of 11 problems per 100 vehicles. The US Big Three - General Motors, Ford, and Chrysler - averaged 17 problems per 100 vehicles. Subaru was 2004's most reliable brand, with an average of eight problems per 100 vehicles.

Hyundai sales in the US, on the verge of a major leap as Sonatas roll off the lines in Montgomery, have already been climbing steadily. Hyundai last year captured 2.5 percent of the US market with sales of 420,000 vehicles, up from 400,000 in 2003.

Still, Hyundai faces a growing challenge from Korean rival GM-Daewoo. Formed by General Motors from nearly bankrupt Daewoo Motors in late 2002, GM-Daewoo forecasts total production of more than 1 million vehicles this year, most of them small- and mid-sized cars, 90 percent sold abroad. It sold 900,000 cars last year.

GM-Daewoo is also raising the bar. Next month it will launch a luxury car here called the Statesman.

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