At Kia, the push is for a separate identity

TALK FROM THE TOP

Since his appointment in August as CEO of Kia Motors Corp., Kim Noi Myung has been developing his vision for setting Kia apart from parent Hyundai Motor Co. The 59-year-old Kim, a career-long Hyundai employee, sees Kia evolving into a sporty brand emphasizing youth appeal. Hyundai, in his view, will be molded into a classical marque aimed at older, educated and affluent customers.

Kim spoke with Staff Correspondent Oles Gadacz in Seoul last month about the task of building Kia into a distinctive international brand and the challenges he faces on the domestic front.

What do you see as your main objectives? Certainly the prospect of a more competitive Daewoo and Renault-Samsung must be a major concern.

We have an especially big challenge right here in the Korean market, where we have to sustain Kia's No. 2 position. The competition is going to get a lot tougher next year.

First, Renault-Samsung will introduce a second model, the Sylvie. Then GM will certainly take over Daewoo and bring their technology and products to Korea.

They'll try to regain lost ground, and we have to expect strong competition.

How will you protect your position?

We have to get back to basics. Importers seem to have learned a lot about the Korean market.

This year, they've widened their product lineup and now offer relatively cheaper products.

Toyota, Mitsubishi and Honda will step up their attacks, and they have the right products, especially in the low to mid-sized segments.

We have to assume all this increased competition is now a given. So we have to look at what we can do better, identify our strengths like our nationwide sales and service network and the large Kia customer base.

We have to sharpen our ability to serve our customers, make them happier than before.

We have to strengthen our basics, on top of which we'll be bringing out exciting new products.

What do you see as the main challenges overseas?

We have to build up Kia's brand image, build from scratch. But we're slowly changing that perception with new products. The new Sedona/Carnival minivan has received a lot of positive attention.

Next year we'll continue that momentum with a sport-utility and freshened versions of the Carens and Rio.

With these new products we can start building Kia's new image.

The Sorento sport-utility is tremendously important to us, not only in the United States but also in Europe, where the sport-utility market is growing very fast. After previewing the Sorento, our dealers are very excited and confident.

We also can upgrade our distributor network. We have some weak ones. But with a strengthened product lineup we can recruit better distributors, or we can get existing ones to upgrade their facilities and marketing.

It has been three years since Kia was taken over by Hyundai, but the distinction between the two brands remains quite blurred. You're essentially chasing after the same customers.

Part of the problem, as you know, stems from Kia's financial difficulties in 1997 and 1998. Kia couldn't afford to invest in new products.

Right after Hyundai and Kia merged, we studied very carefully whether we would maintain two brands.

We came to the conclusion that in marketing and sales, we'd keep two separate brands. In r&d, purchasing and other areas, where we can attain synergy, we consolidated activities, and our first joint product was the Optima/Sonata.

So we've given a lot of thought to the issue of brand strategy, and it's not something that can be changed overnight. It's a task that'll take five, maybe even 10 years.

Even though Kia is in almost all the same segments as Hyundai, we can't suddenly decide we want to become a niche manufacturer of sport-utilities and minivans.

I think the Kia brand should project a sporty, younger image. "Spunkier and fun to drive" is how our Kia Motors America marketing vice president has described it.

Hyundai is more like a Toyota: inclusive, more comprehensive and classical, if you will. Even within the same segment, the mid-sized Kia Optima and Hyundai Sonata, for example, we could be targeting different kinds of customers, so that Kia takes aim at the younger ones.

The recent regrouping of brands at VW/Audi is something perhaps worth emulating. You'll have to wait until 2003-2004, when the first integrated Hyundai/Kia platform comes out. Then you'll really start to see the difference in our products and in our image.

It's much more of an imperative for us to establish a unique image for Kia in the domestic market, where we are seen as a smaller, younger sibling of Hyundai, which overshadows us. So we have to find our own customer that's clearly different from Hyundai's customer demographics.

You don't have any competition in the domestic light-truck business. Do you see any need to consolidate Kia and Hyundai truck businesses?

We'll defend our light-truck business in the domestic market, and the best way of doing that is to continue with two brands. And our Kwangju factory makes light trucks for Hyundai on an OEM basis.

As for heavy commercial vehicles, negotiations are still in progress with DaimlerChrysler. And as long as those talks continue, we haven't made any final decision on the future of our bus and heavy-duty truck operations.

What's the latest sales and profitability outlook for 2002?

In our best-case scenario, we expect single-digit growth. But even that is very ambitious in the current recessionary climate. In overseas markets, the recession really is taking its toll and will continue into the first half. So we don't expect a recovery until the second half.

But with the Sedona/Carnival minivan doing so well, and the new Sorento on the way, we remain optimistic about our prospects. As for profits, 2002 shouldn't be any worse than this year.

In addition to incentive spending, you now have the added burden of the five-year bumper-to-bumper, 10-year powertrain warranty in the U.S. market. Isn't this eroding your bottom line?

When we started this, our service people came up with some forecasts about how much 5/10 would cost. Kia's product quality is consistently improving, and incentive spending has been scaled back since introducing our 5/10. Although the final cost

isn't in yet, we're confident it'll be below our calculations.

What's the status of your joint venture in China and your Indonesian operation?

Well, the most significant development in China is that we now have central government approval to go ahead with our passenger car project. But it's a multistep regulatory process with lots of red tape involved. So it's still far too early to talk about any details beyond our already announced plans to invest in a 300,000-per-annum plant there.

As for Indonesia, there's no clear way out for us until the structural problems like dealing with debt and reforms in the Indonesia economy are carried out first.

But we're still maintaining contact with our partners there, and we remain hopeful.

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