Record exports for Hyundai
Sep 27
Donald Greenlees | Wall St Journal | Seoul
On July 28, the 10 millionth vehicle to be exported by Hyundai rolled up a red-carpeted ramp onto a ship bound for France. The export of the Tucson all-wheel-drive capped a series of recent triumphs for the South Korean car maker.
Last December, it became the first Korean car maker to export 1 million cars in a year. A month earlier, its annual export sales passed $US10billion ($14billion) for the first time. These milestones put it second only to Toyota as a vehicle exporter. Korean car exports have been flowing at record rates. Last year, they grew 20.3per cent. Hyundai forecasts the number of its exported vehicles will rise to 1.4million this year from just over a million last year, sustaining the company's growth.
The export records were accompanied by laurels for quality from respected industry judges, lifting a mediocre brand image. The export and quality results coincided with record revenue and profit. Hyundai's net profit rose 21per cent to $1.4billion in 2003. Not surprisingly, all this good news has produced an ebullient mood among senior executives at company headquarters in southern Seoul. Chairman Chung Mong Koo has hailed the "remarkable progress".
The company sold its first cars overseas just 28 years ago: six of its small Ponys to an Ecuadorian taxi operator. Export sales have gone to an expected $12billion this year from $3.1million in 1976. That export performance makes Hyundai critical to the health of the entire South Korean economy.
The key to the export success story: Hyundai's small entry-level cars have offered hard-to-beat value. Even if the brand lacked kudos or a reputation for quality, consumers, particularly in the US, were happy with the price tag. "People didn't buy us for the name; people bought us because we offered a better deal," says Hyundai's director of global public relations, Oles Gadacz.
But the formula of selling entry-level vehicles at low prices has become increasingly unsustainable. Unions are used to winning the kind of wage increases that will hardly be possible in the future. Production and materials costs have surged. A potentially tougher trade environment and an emerging challenge from vehicle and components manufacturing in China could make it harder to use Korea as an export platform. Korean cars increasingly need to demonstrate greater technological and design sophistication to match their foreign rivals.
Hyundai Automotive Group - comprising Hyundai and Kia, the industry's dominant players - realises success will come with moving manufacturing and design facilities into the main markets where it is doing business. It is rapidly expanding production capacity in China and India. In China, production is expected to rise to 600,000 by 2007 from 150,000 vehicles a year in 2003. Sales in China for the first quarter of 2004 were more than triple those of last year.
Hyundai has also embarked on aggressive investments in manufacturing and research and design in the US and in Europe.
By 2010, Hyundai and Kia estimate they will be building 2 million cars a year outside Korea.
This comes amid a depressed domestic car market. A slowdown in economic growth and a pile of bad credit-card debts have eroded consumer confidence. Last year, domestic car sales fell 19per cent.
Increased competition in a flat domestic market will force Korean car makers to rely increasingly on foreign sales to stay profitable.
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