If Hyundai and Kia achieve their long-range sales targets, the two Korean automakers will sell 1.5 million vehicles per year by 2010 and rank among the top-tier import manufacturers in the U.S.
Hyundai owns a controlling interest in Kia, and combined sales of 1.5 million units or more would lift the Hyundai Group into territory now occupied by Honda, the second-largest import manufacturer.
Honda, including its Acura division, sold 1.2 million vehicles in the U.S. last year to take 7 percent of the market. Toyota (including Lexus) was the top import manufacturer, selling 1.7 million vehicles last year for a 10 percent market share.
Hyundai and Kia combined sold 569,956 in 2001. Sales are up 8.4 percent this year to 572,392 through November, continuing a growth spurt that began after Hyundai took control of Kia in 1998. Their U.S. sales that year totaled 173,110.
Though Hyundai Motor Co. controls Kia, the two companies operate separate U.S. sales organizations that compete with each other, mainly in the low end of the market.
About half of Hyundai’s sales are of the Accent and Elantra, entry-level small cars priced in the $9,000 to $15,000 range. The similarly priced Spectra and Rio account for about half of Kia’s sales.
However, Finbarr O’Neill, chief executive of Hyundai Motor America, sees a diversified lineup that includes more higher-priced models such as the Sonata midsize sedan and Santa Fe sport-utility vehicle lifting Hyundai sales to 500,000 vehicles by 2005 and 1 million per year by 2010.
“Entry-level models will still be an important part of our lineup. They just won’t be the emphasis,” O’Neill said in a telephone interview.
O’Neill expects sales of the Accent, Hyundai’s cheapest model, to decline, and by 2005 the Elantra, Sonata and Santa Fe each will sell more than 100,000 units annually. Hyundai is building an assembly plant in Alabama, due to open in 2005, that will build Sonata and Santa Fe and allow higher sales of both models.
Jeff Schuster, North American forecasting director for J.D. Power and Associates, expects Hyundai and Kia to continue growing, but he doubts they can grow that much that fast.
“To grow at the same level the next five or 10 years is going to be extremely difficult,” Schuster said. “This would assume they will continue to erode the volume that everyone else has, and that is unlikely. They certainly have caught the attention of Toyota, Honda and the domestics.”
Hyundai’s projection of 1 million vehicles by 2010 is based on the industry growing to 20 million from around 16.5 million this year. Power estimates sales of 18.5 million or less, and Schuster calls Hyundai’s projection “very, very aggressive.”
He credits both brands for improving their quality and offering products that appeal beyond low prices.
“Initially, they were getting their volume on price. Now, once they get the customer into their vehicle, there’s almost a surprise factor and they say, `Hey, this is pretty good,'” Schuster said.
Both brands, he added, are following a path similar to Toyota’s in the U.S.: Establish a beachhead with low prices, improve quality and then add more-expensive models to keep owners coming back.
Positioned as a price leader because it entered the U.S. market in the 1980s, Hyundai is moving out of the bargain-basement class with the Santa Fe, its second-best selling model, starting at $17,000 to $24,000.
Hyundai’s largest, most expensive sedan is the XG350, and O’Neill says customers are not balking at the base price of nearly $25,000.
“It’s been received very well, and we’ve sold in the volume we expected. By 2005, I would like to see sales of 50,000 units per year,” he said, which would triple current XG350 sales.
Without giving specifics, O’Neill says Hyundai plans to add an SUV smaller than the Santa Fe in 2004 as a rival for the Toyota RAV4 and is considering a larger SUV and a “truck-based” model. Hyundai does not offer a pickup in the U.S.
“For us to get our share, we would need a full range of products,” he said.
Peter Butterfield, executive vice president and chief operating officer of Kia Motors America, says low prices and a 10-year warranty (also offered by Hyundai) will continue to fuel Kia’s growth by luring young buyers from used vehicles. Kia expects to sell nearly 250,000 vehicles this year and 500,000 by 2010.
“We see about half our business with the Rio and Spectra coming out of used cars, and many of those buyers are making their first new-car purchase,” Butterfield said. “Our styling is pretty good with those cars, and we have very affordable products for Generation Y. There is still room for tremendous growth there.”
Kia also is moving up the price ladder with new models, such as the Sorento SUV, which sells for an average transaction price of $24,000. In late 2003, Kia will add a sporty sedan based on the XG350 with larger dimensions and different styling.
In a recent speech in Chicago to the Midwest Automotive Media Association, Butterfield outlined plans to create a brand image that stands for safety and quality, not just value, an attribute that also identifies Hyundai.
“My vision is that five to eight years from now, when someone is sending their daughter off to college, they will want to send her in a Kia because it stands for all those things,” he said. “It will take a long time to do that. Today, we own value. We don’t own quality and safety.”
Butterfield wants Kia to have a safety reputation like Volvo’s. The Sedona minivan scored five-star ratings in the government crash tests (the highest), and Butterfield expects similar results for the Sorento.
“No one in the $10,000 to $25,000 price range owns safety. We are starting to move into safety,” he said.
Kia scored third lowest among all brands in the latest J.D. Power and Associates Initial Quality Study (Isuzu and Suzuki were lower) and the company recently created a product-quality department staffed by 10 full-time engineers to improve its ranking.
Hyundai and Kia share one model (the Kia Optima is based on the Sonata), but both companies expect more vehicle sharing in the future.
“The challenge as we move forward is whether we can differentiate our products,” Butterfield said. “We compete with Hyundai in many segments. It’s just like competing against other manufacturers.”
O’Neill adds: “I expect us to be in the same segments as Kia, but we have to have much different identities so we are not chasing the same customer.
“There can be a fair amount of commonality [of vehicles] between brands and still have radically different products, like Volkswagen and Audi.”
Hyundai spokesman Chris Hosford said only about 10 percent of Hyundai buyers cross shop Kia. Hyundai cross shopping depends on the model. For example those who look at a Sonata also try a Toyota Camry and Santa Fe intenders check out the Ford Escape.
Only 5 percent of Kia buyers also shopped Hyundai, spokesman Kim Custer said. Ford, Toyota and Honda were the top three alternatives that Kia buyers considered, he said.
%% HYUNDAI SALES
1998 1999 2000 2001 2002*
Accent/Excel 30,231 41,235 66,736 79,480 67,770
Elantra 37,501 83,292 104,099 111,293 111,646
Sonata 14,144 30,022 45,983 62,385 63,736
Tiburon 8,341 9,641 15,237 19,176 18,635
XG300/350 — — 2,004 17,884 15,635
Santa Fe — — 10,332 56,017 72,253
Total 90,217 164,190 244,391 346,235 349,675
KIA SALES
1998 1999 2000 2001 2002*
Sephia 54,311 82,211 67,89 349,016 —
Optima — — 97 25,910 25,209
Rio — — 16,624 51,541 48,693
Spectra — — 13,642 29,817 68,648
Sportage 28,582 52,383 62,350 52,368 37,532
Sedona — — — 15,069 36,903
Sorento — — — — 5,735
Total 82,893 134,594 160,606 223,721 222,720
Combined sales 173,110 298,784 404,997 569,956 572,395
* Through November
Source: Automotive News
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