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Published: February 26, 2013
 / Spring 2013 / Issue 70

 
 

Hyundai’s Capabilities Play

The Korean automaker’s explosive growth in the last few years—achieved through better quality, stylish design, and clever marketing—has made it a dynamic player in the U.S. auto industry.

Anyone looking for an explanation of the Hyundai Motor Company’s approach to the U.S. market—which has brought it from a near collapse in sales in 1998 to controlling 5 percent of the market today—might start with the third door on the Veloster hatchback. This sporty car, aimed at people under age 35, sells for a starting price of around US$20,000. It’s an idiosyncratic car, with the look of a sleek, friendly shark; it also has a single door on the driver’s side, but two doors on the right.

The third door, whose purpose was to improve access to the back seat for passengers or cargo, was originally conceived as a purely pragmatic feature. Then, as part of an internal face-off, two design teams—one at Hyundai’s design and engineering center in Ann Arbor, Mich., and the other at Hyundai Motor America headquarters near Los Angeles—were assigned to build prototypes. The Michigan team proposed two doors on the same side opening in opposite directions—an otherworldly, appealing design. But as the California team pointed out, a passenger stepping out of the car would not see traffic coming up behind the door. The Californians bestowed the nickname “suicide doors” on their rivals’ offering, and suggested instead a more conventional parallel design, but one that placed the handle in an unusual corner position, which enhanced the car’s funkiness and flair.

The California door won the approval of top management; the Veloster sold out soon after launch in January 2012, and remained sold out during most of the year, bolstering Hyundai’s reputation for fashion-forward, inexpensive automobiles. A more powerful turbo version was introduced in September. “There’s an acknowledgment by many designers right now that Hyundai has the hottest design in the industry,” says Joe Philippi, president of AutoTrends Consulting LLC of Short Hills, N.J.

Hyundai’s prowess in design, product launch, and consumer awareness is part of a distinctive model of product management that this $66 billion, family-owned and -run car company has only recently brought to fruition. The Korea-based enterprise, regarded in the 1990s as a purveyor of cheap, low-quality cars and in the 2000s as a “me-too” follower of Toyota and Honda, has since become the fastest-growing automotive brand in the United States. In 2011, according to the consultancy Interbrand, the only companies that improved their brand recognition more were Google, Apple, Amazon, and Samsung. Hyundai sustained an impressive performance in Interbrand’s 2012 evaluations. And a jury of 50 automotive journalists named Hyundai’s Elantra sedan the 2012 North American Car of the Year, beating out Volkswagen’s Passat and Ford Motor’s Focus. Other Hyundai offerings, such as the Genesis Coupe and Sonata Hybrid (an angular car with two panoramic sunroofs) have had similarly positive receptions.

Hyundai has been able to step out from behind its larger Japanese competitors and stake a claim to style leadership in part because of the culture of creativity that it has fostered, in which U.S. employees and Korean executives innovate together. “Hyundai doesn’t cede as much control to the Americans as Toyota does,” says Ed Kim, who worked at Hyundai for four years and is now vice president of industry analysis for AutoPacific Inc. in Tustin, Calif. “The Koreans remain very much in control.”

But at the same time, Hyundai has learned how to encourage local teams—in this case, U.S. teams—to go out on a limb and compete in search of ambitious and unconventional solutions. The combination of central control and local responsiveness has given the company an ability, now embedded in its culture, to pick up local signals and rapidly turn them into product designs. Managers speak of working at “Hyundai speed.” This has enabled the company to release 21 new North American models in five years, including a new luxury sedan called the Equus.

 
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Resources

  1. William Barnett, James March, and Mooweon Rhee, “Hyundai Motor Company,” Stanford Graduate School of Business, 2003: A case study of the company’s struggles to establish itself in the United States.
  2. Brian Collie, Scott Corwin, and Arjun Kakkar, “Optimism Returns to the American Automotive Industry,” s+b [online only], June 4, 2012: The U.S. auto market is recovering, and other automakers will be competing fiercely with Hyundai.
  3. Detroit Free Press, “Hyundai Leapfrogs Toyota in Quality,” June 8, 2006: An early article describing how Hyundai was successful in improving its quality.
  4. William J. Holstein, “Convincing Consumers to Spend Again,” s+b [online only], Apr. 7, 2009: A look at how Hyundai achieved a marketing breakthrough in a moment of economic fear.
  5. John Pearley Huffman, “The 2012 Hyundai Accent GLS: So Perfectly Ordinary That It’s Extraordinary,” New York Times, Apr. 13, 2012: A sampling of how automotive critics describe Hyundai’s success.
  6. Alex Taylor III, “Hyundai Smokes the Competition,” Fortune, Jan. 5, 2010: A rare conversation with Chairman Chung Mong-Koo.
  7. For more thought leadership on this topic, see the s+b website at: strategy-business.com/auto_airlines_and_transport.
 
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