Humble clone of Mazda and captive brand of Ford, debt-burdened Kia looked out for the count at the end of the last century. Backed by Hyundai, however, it’s back in the ring and battling hard. And for the rivals of both brands there could be worse to come. By Karl Ludvigsen
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Of all the car-company sagas of the 21st Century, surely none overshadows the achievements of Kia. From virtual extinction Kia has recovered to become one of the fastest-growing brands, bolstered by the announcement of its new factory in Eastern Europe. It’s a comeback of epic proportions.
In 1998 Kia Motors Corp., then $7.2 billion in debt, had applied to be placed in receivership. Caught in a bid battle between Hyundai and Ford, which already held a 9.6% stake, Kia earnestly hoped to be bought by Ford. With Ford, it felt, it had the best chance to continue on its own and develop as a company. As well, it could carry on its technical relationship with Mazda, which had 6.7% of Kia.
On the other hand, if Hyundai were to win the auction for the troubled company, Kia feared that it would be consigned to oblivion. Many analysts foresaw this at the time. Said one, “Hyundai has the clout to shut down the excess capacity that is the bane of the industry.” Expectations were clear: Hyundai would close down Kia and use the best of its plants to make more Hyundais. Any urgings of an independent role for Kia and its engineers and employees would be stifled.
Kia is one of the newer kids on the block. It traces its origins to 1944 when, with Korea still occupied by the Japanese, it was founded by Kim Chul Ho, an engineer in a Japanese steel-processing company. In 1952 Kim and his 50-strong workforce made South Korea’s first complete bicycle, and 1961 they made their first motorcycle. In 1976 Kia took over Asia Motors and by 1979 it was assembling Peugeots and Fiats on the peninsula. Early in the 1980s, with Mazda’s help, it made the first Kia-badged cars. In 1993 it warded off a hostile takeover attempt by Samsung, which entered the auto industry through a tie with Nissan instead.
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By GlobalDataLike its fellow Korean auto makers, Kia bet big on a global future in the 1990s. In 1990 it opened its new plant at Asan on land reclaimed from the sea in the Hwasung region. Adding to its facilities in Sohari and Kwangju, this brought Kia’s total capacity close to the million-vehicle mark. “Expansion is necessary to survive and grow,” said its president at the time, justifying the spending of $6 billion on his investment plan. Those were the days when the Korean banks and government tossed loans to big business like bonbons from a tray. With Kia choked by indebtedness to 23 banks and its workforce on strike against its liquidation, its chairman stepped down in October 1997, apologising “to the public, the government, our creditors, the Kia family and subcontractors for causing a lot of concern” and calling his previous 100 days “hellish”.
That was about as low as it gets for an auto maker. Kia and its 20,000 workers braced themselves for decimation after October 19, 1998 when it was announced that arch-enemy Hyundai, the 800-pound gorilla of Korea’s motor industry, had won the auction for Kia Motors and its affiliate Asia Motors. But they were in for a surprise. Hyundai’s chairman, the youthful Chung Mong Kyu, said that he would try to preserve Kia’s brand, technology and platforms to the extent possible. Although in his job for only a year, Chung spoke with confidence about his vision for Kia. It involved building the brand, not destroying it.
Chung Mong Kyu’s ideas were pivotal in the actions that Hyundai took with respect to its acquisition. He’s a firm believer in Hyundai’s need for additional volume to gain economies of scale. At the same time, however, he realises that Hyundai alone can’t expand its product range in such a manner as to meet everyone’s needs and desires at higher volumes. That’s why he places high value on Kia’s independent image and heritage, scanty though both were at the time of the takeover. It’s Chung’s decision to build up – not destroy – the Kia brand as an independent alternative to Hyundai.
At the same time, Chung Mong Kyu realised that he had to effect economies behind the scenes. “One of his key decisions was to bring the research and development people of both companies together right from the beginning,” said Stephen Kitson, Kia’s press chief in Britain and a former Hyundai man in Seoul. “He also brought the purchasing people together very early.” Product-planning staffs were merged as well at Hyundai’s Seoul headquarters, as I recall from my own visits there to consult on product and brand research. The styling teams, however, are separate, each nurturing a separate look for its marque – not without success. Kia’s brand is being taken in a “young, sporty and friendly” direction while Hyundai remains more serious.
Thanks to these early co-ordinating actions, said Kitson, less than five years after the acquisition “there are no engines, gearboxes, suspensions and the like that aren’t derived from technologies that are shared between the two brands. Our platforms are shared to a 97% level.” This is a remarkable achievement in a short period by car-industry standards that gives the enlarged Hyundai Group the opportunity to effect remarkable scale economies.
Importantly, the rapport is excellent between Hyundai’s Chung and Kim Yong Hwan, Kia’s vice president and chief operating officer. Kim, who was formerly in Europe with Hyundai, is able to lead Kia bolstered by the confidence that Chung approves of what he’s doing. The clearest sign of this was the decision, announced at Geneva in March, to put Kia in charge of the Group’s new factory at Zilina in the Czech Republic, 120 miles north-east of Bratislava and not far from Poland’s southern border. It will give Kia the yearly ability to make 200,000 B- and C-segment cars that will penetrate the heart of the European market.
“Our commitment to Europe is absolutely clear for all to see,” said Kim Yong Hwan at the announcement of the new plant. Kia sold 150,000 cars in Europe last year and is aiming for 240,000 this year. By 2005 it would like to have 2% of Europe’s car market – a very aggressive goal, considering that Nissan’s share today is 2.8%. But the revitalised Korean company has, or is getting, the product to do the job. “We now have our infantry divisions equipped with ammunition,” boasted Oh Tae Hyun, Kia’s director of export planning.
That Kia is gaining respect in Europe is shown by auto motor und sport’s latest survey of its readers. Its findings marked Kia as one of the year’s gainers, ranked only behind Skoda and Hyundai in providing a “good price/performance relationship”. Germans now put Kia – Kia! – ahead of both Mazda and Toyota in this important category. Findings are good Stateside too. In 2002 J.D. Power & Associates named Kia as the world’s “most-improved” brand for new-car quality while in 2003 it was still third on that list and well above average in quality.
Kia’s improved penetration has been abetted by its broader coverage of the car market. It had ten new-product launches between 1999 and 2003 and is scheduling 16 in the 2004-2007 time frame. This is bad news for a lot of people, especially the C-class contenders who’ll be faced by its JB model set for launch in the spring of 2005. Many of its new designs are brewed in a $62 million R&D centre in Rüsselsheim near Frankfurt, at the nexus of what Kia sees as Europe’s most important auto market.
A hint of Kia’s new European-honed design smarts is given by its Picanto supermini, its five-door answer to the Opel Agila and Ford Ka. It’s built on a new platform that will be shared with the next-generation Hyundai Atos. Autocar was impressed, calling it “a capable, charismatic little motor. One thing’s for sure: success or failure, the Picanto will go down as one of the most vital small cars of the year, along with the Fiat Panda and the Cityrover.” “Overall the Picanto feels very European,” said Automobil Revue, “though it’s a shame that we have to wait until mid-2005 for the promised diesel engine.” Just providing a diesel in this category will be a big breakthrough for Kia.
At the less-praised end of the Kia scale is its Rio, which Britain’s Jeremy Clarkson called “dreadful…something that’s not very good, but probably good enough.” With its Cerato, launched at the Geneva Salon, Kia expects to be offering a better contender. It’s Kia’s first model with an optional diesel engine. We can also be sure that Kia’s designers are hard at work on better small cars for Europe to be built in its Slovakian plant.
At its top end Kia offers a 4,100-pound luxury four-door that’s badged Amanti in America and Opirus in Korea and Europe. Sharing a platform with Hyundai’s XG350, “the Amanti whisks together traditional luxury and Asian quality at a ground-ball price,” said Car and Driver. “Gosh, the kids grow up fast these days.” The value is there too, said Road & Track: “An Amanti in base trim has more standard features than a base Toyota Avalon and it’s roughly $1,000 less expensive.”
Only one part of the Kia picture could be more rosy. The scene at home isn’t the brightest. Last year’s home market in South Korea was in recession, down some 18% from 2002. Kia’s Korean sales, however, were down by more than 26%. Now backed by GM, Daewoo hasn’t obliged Hyundai/Kia by collapsing, and Renault‘s Samsung is enjoying a revival. Kia has to hope that its increased emphasis on global products won’t undermine its appeal to its dealers and customers at home. Just that has happened to some of its Japanese rivals (Mazda and Nissan to name two) in the past.
Now here’s something that may give pause. Around 2000, providing as I was guidance to both Kia and Hyundai, I said that it was not too soon to start thinking about the introduction of a premium marque for the group, a new brand at the very top. Positioned as they are to offer value above all, neither Kia nor Hyundai is likely to inspire enthusiasm among buyers looking for a prestige luxury car. What they needed, I said, was a new third brand at the apex of their product pyramid.
The bad news for rivals of by far the biggest Korean car company is that I heard, a bit more than a year ago, that they’re starting to put some meat on the bones of my suggestion. If they get it right, a premium brand from Korea could become a very powerful global moneyspinner. And if they don’t get it right, they’ll try again. That’s the Korean way.
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
