How Hyundai Became an Auto Industry Pacesetter

2. 0 Article Summary At first Hyundai just a car repair shop founded in 1947 by Ju-Yung Chung. After three decades, he expanded Hyundai into other industries, including engineering, construction and auto manufacturing in 1967. In 2000, before he died, Chung split up his holdings among his sons, giving each control of what are now separately owned companies, including Hyundai Heavy Industries Group and Hyundai Asan, a real estate development and tourism company. Mong-Koo (M. K. ) Chung became chairman of Hyundai Motor. Hyundai is a family-run company. This one of big reason it has been able to maintain focus and discipline.

The company is also one of the key actors in the astonishing economic surge in South Korea since the 1960s. The push of development in Hyundai started under President Chung-Hee Park, a general who seized power in 1961 until 1979. When Park took over, South Korea was an impoverished agricultural country whose average per-capita income was about the same as Ghana’s. Park curtailed imports, and channeled loans from foreign lenders and domestic banks into export-oriented manufacturing concerns. He is the person who transforming South Korea from agricultural country into export-oriented manufacturing.

During this era, Hyundai has move a step forward to become one on the player in export-oriented manufacturing along with country’s biggest industrial enterprises such as Samsung and LG. In 1980s, Hyundai tried to enter North America market especially Canada and USA to become one of the main players at automotive industries by flooding the market with cheap and poorly made compacts. They try to compete with the other automotive giant by providing cheaper car rather than provide quality product. They introduce Pony and Excel model in the North America market. Those two models were hot sellers at the start.

Hyundai started exporting the Pony to Canada in 1983. Priced at about $6,500, the Pony sold more than 57,000 units in 1985, making it the No. 1 import model in the country. But the car’s exterior and interior finishes were poor, it rusted easily in the Canadian winter and the plastic heater core often froze. In the U. S. when the front-wheel-drive Excel was introduced in 1985. The car was priced at less than $5,000 (U. S. ), was voted one of the year’s 10 best new products in a Fortune magazine survey, and sold more than 168,000 units in its first year. But sales started skidding in 1988.

At first people just assumed the vehicles were Japanese quality because they never heard about Hyundai previously. Both of the models only became jokes for years due to lack of quality and poorly made. Executives in Seoul were humiliated by their company’s bad reputation. Cutting level of quality to compete on price was not just a short-term tactical error but a mistake in long-term strategy. But they learned from their mistakes. In the 1990s, they committed themselves to quality, an intense work ethic, and a centrally directed long-term plan this change as boost the sell and the brand of Hyundai.

The company had already started making some improvements in the 1990s. An early milestone was the development of Hyundai’s first proprietary engine, the Alpha, in 1991 and the 1999 model year, Hyundai was confident enough of the quality of its cars to introduce a 10-year powertrain warranty in the United States, an industry best-practice at the time. Hyundai didn’t follow its other rival such as Toyota to spend more in research and development in order to make revolution of their company in 1960s and 1970s. However Hyundai only spend 5% of its revenues on R&D which is just average in automotive industries.

But, the company studies the best technology and process of its competitors and applied in their company. Hyundai has make quality of their product as their priority. They did not only relay on their quality control report but also looking at third-party assessments of what the customer is saying about their product quality. The quality drive strategies started to show it result. In 2003, Hyundai tied Honda for second place in an annual reliability ranking by Consumer Reports magazine and the first place claim by Toyota. In 2004, Hyundai scored a breakthrough in J. D.

Power’s widely watched initial quality survey. In this study, the firm asks new-car buyers to identify quality problems 90 days after they’ve bought their vehicles. Hyundai tied Honda for second place with an average of just 102 problems per 100 cars for all its models, a 29% improvement from the previous year, and just one more problem than Toyota. Year 2009 has a big and important impact on Hyundai in world automotive industries. As it was wonderful year for Hyundai and brutal one for its competitors. Hyundai has became fourth-largest automaker in the world surpassed Ford.

Hyundai has became the only major manufacture to increase sales by 9% to 675 000 vehicles while total industry sales reduce by 21% during the recession time in USA. In Canada, Hyundai sold more than 100,000 vehicles, making it the fastest-growing import brand. In China, the company’s sales roared forward by 94% in 2009. Hyundai is now just about the only manufacturer that can focus all its energy on the future. Toyota is still struggling to recover from the defective-accelerator scandal that torpedoed its sales and morale, and the other competitors are still struggling with the legacy of two decades of decline.

Meanwhile, Hyundai is pushing ahead with quality and styling improvements to its existing models. All of this due the change in strategies made by Hyundai which is from price-oriented to quality oriented to survive in the automotive industries. Power and Associate which is the marketing analysis firm that has big influence on auto industry conduct annual surveys of both vehicle quality and buyer satisfaction found that Hyundai’s quality scores have actually been as good as, or better than, its U. S. and Japanese rivals since 2004.

They also said that Toyota’s embarrassing experience with its defective accelerators over the past year proves, even if you’ve had a reputation for quality for decades, it can gone in about 20 minutes if there’s a major problem in product quality. However, in process to achieving the success, there are two big obstacle faced by Hyundai, First it need years for quality survey to boost sale and the chairman M. K Chung was involved in massive embezzlement scandal. Eventhough the chairman has involve in the scandal, he genuinely revered by Hyundai executives around the world where there firms sell cars more than 190 countries.

It start when M. K Chung was arrested in Seoul on April 2006 and charged for embezzlement of company’s money in total of $100 million and also charged for giving bribe to government officials and bankers. He spent two months in jail before being released on bail and was convicted in February 2007 and sentenced for three years. However, the higher court suspended the sentence due to Hyundai’s importance to the country’s economy and Chung vowed to keep a promise he made in 2006 to donate 1 billion to charities.

However, in August 2008, Chung was received pardons from South Korean president Myung-Bak Lee. Despite the entire obstacle, Hyundai is keeping on moving. It has introduced better and more stylish cars over the past five years and provides several long term advantages. One of advantages provided by Hyundai is in term of cost and price. Hyundai’s cars aren’t as wildly cheap as they were in the 1980s, but they sell for 5% to 10% less than competing models. Hyundai also offered hefty sales incentives to recession-battered U.

S. buyers in 2009-an average $2,500 (U. S. ) per vehicle and yet also earnings net profit of $1. 7 billion (U. S. ) on sales of $18. 7 billion for the first nine months of 2009. Toyota posted big losses over the same period same with other competitor. Many keep on questioning, how come Hyundai can provided lower cost and price despite maintaining the quality? Many North Americans assume that Korean autoworkers are less militant than unionized workers here, and that they earn little wages. Neither is true.

Hyundai pay their worker approximately $22 (U. S. ). Still, the Korean labor cost is substantially higher than the typical $10 (U. S. ) in Mexico and just $3 (U. S. ) in some factories in China. Moreover, Hyundai workers in Korea have gone on strike almost every year since the 1990s. Last December, management narrowly avoided a strike by agreeing to pay a onetime bonus of three months’ salary to cope with the problem. There are also several factor contribute towards lower cost and price provided by Hyundai.

One of the factor is efficiencies are its mature and highly competitive parts suppliers in Korea, its own proprietary technology (which it owns and therefore doesn’t have to pay to license), and its centralized control of worldwide production. Hyundai have five factories that make up the complex which can produce 1. 6 million vehicles a year. But executives and industry analysts say that even Hyundai’s newer plants use up fewer labor hours per vehicle than its major competitors. In term of decision making, Hyundai still apply centralize decision making eventhough its competitor has move to more flatter structure.

However the decision making made by Hyundai still faster than its competitors. According to senior vice-president in marketing division speed is the DNA of our company. Despite the centralization and all the attention to detail in Seoul, Hyundai Canada marketing Vice-president John Vernile says the company gives local executives enough autonomy to implement decisions quickly. According to him also, quality pays off in customer loyalty. Last year, 53% of our buyers were repeat buyers. That’s not far from the best in the industry