How the Koreans will surprise everyone in China
Michael Dunne, president of Dunne & Co., wrote "American Wheels, Chinese Roads: The Story of General Motors in China."
At last year's Shanghai auto show, Volkswagen CEO Martin Winterkorn was captured on tape behind the wheel of a Hyundai, impatiently asking his aides: "How come they can do it?"
That's a question more and more people are asking these days because the Koreans consistently do things that look impossible.
The latest example? Hyundai and Kia together are expected to sell 1.3 million vehicles in China this year, making it their No. 1 market worldwide.
The Koreans have a larger market share than Toyota, Nissan or Honda in the Middle Kingdom and are closing in on Shanghai General Motors.
Most remarkable: They have achieved record sales and market share in China despite several challenges that easily could have sidelined them.
So what are the key ingredients in this stunning success? And can the Koreans continue to work around some lingering liabilities?
Ironically, Hyundai and Kia have achieved remarkable heights in China despite some serious shortcomings.
For starters, let's look at partner relations.
Hyundai's partner is Beijing Automotive Industry Holding Co., a state-owned enterprise notorious for its stubbornness and high-handed ways.
Before tying the knot with Hyundai in 2002, Beijing Auto had dragged earlier joint ventures with Chrysler and Isuzu through years of confrontation and eventual failure.
When a senior Korean executive recently was asked how Hyundai had managed to avoid the kind of rocky relationship that doomed the earlier joint ventures, he shook his head and said: "No, no ... we fight each other all of the time, too."
Kia management, for its part, has had its hands full managing a tricky three-way alliance with Dongfeng and Yueda in which the Chinese partners occasionally refuse to speak to each other.
Beyond the complicated partnerships, there is the frailty of the Koreans' brand image.
At last month's Beijing auto show, a senior Hyundai executive from Seoul asked his China staff a question loudly enough to be heard by people standing nearby: "Why are there not more people coming to look at our cars?"
It was not a rhetorical question. For Chinese customers, Hyundai and Kia do not offer the electric appeal associated with European and American brands.
In part, that's because the reliability of Korean vehicles is still seen as a notch lower than the likes of Honda and Toyota, though their quality is generally superior to U.S. and European makes.
Fresh designs, low prices
So how do Hyundai and Kia persuade Chinese consumers to purchase so many cars despite their pedestrian brand power, wobbly partnerships and iffy customer service?
By offering a vast array of products, some fresh designs and attractive prices.
Chinese customers can choose from 19 Hyundai models and 16 Kia models, the majority of which are produced in China.
The Koreans also have adopted a clever pricing strategy.
Hyundai and Kia sell current- and last-generation models in China at the same time, channeling the newest offerings to affluent coastal residents and the older models to inland markets.
That helps reduce production costs while permitting more aggressive pricing. Combined sales through the first quarter reached 310,000 units, up 7 percent from a year earlier.
Hyundai is preparing another assault. In July, it will open an assembly plant that will add 300,000 units of capacity this year and ramp up to 400,000 units in 2013. That plant will produce the Elantra, which should trigger a fresh kick in sales.
Taking the approach that has worked in America and Europe -- aggressively producing and selling quality vehicles -- the Koreans are on track to set China sales records in 2012.
And if Hyundai and Kia can find a way to lift their brand image and improve service, VW and GM had better take cover.