Focused, Feisty Kia Bears Down on Its Competitors Hot Models Have Attitude and Quality to Back It up by Roger Yu USA TODAY
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Focused, feisty Kia bears down on its competitors Hot models have attitude and quality to back it up By Roger Yu USA TODAY HWASUNG, South Korea — At the 800-acre Kia Motors plant in this coastal city overlooking the Yellow Sea, there is scant evidence of the tumultuous past that almost killed the company. Workers, who routinely took to the streets a decade ago to seek job protection and to protest management decisions, now break for soccer matches on three artificial-turf fields. Dorms provide lodging for unmarried employees. A company hospital and fire station are just a few steps from the factory entrance. Inside, an employee cafe sits at the center of the factory floor. Parts of Kia‟s largest plant seem almost idle — until you follow the loud whirring noises coming from behind glass walls where robots weld, coat and mount parts around the clock. With a mollified workforce and enhanced automation, the Hwasung plant is running at full capacity: It built 547,000 vehicles last year to meet growing global demand. South Korea‟s Kia has flourished through the recent years of industry turmoil, thanks to initiatives begun in 2005 to turn around a reputation for cheap cars of dubious reliability and create a lineup of quality vehicles with cutting-edge design. “We had to get back to the basics,” says Tae-Hyun “Thomas” Oh, chief operating officer, at Kia headquarters. “We worked hard in pursuing product quality. We knew we couldn‟t sell our cars without it.” The plans included designing sleek models for the “young at heart,” spending more on youthful ads, courting critics and firing weak dealers. As the global economic slump caused consumers to cut spending and seek more value, Kia gained market share by rolling out new models with more features at aggressive prices few rivals could match — along with the ongoing 100,000 miles/10-year warranty it shares with corporate sibling brand Hyundai. “People were looking for the same features, but for a little bit less money,” says Jeremy Anwyl, CEO of Edmunds.com , a car data and shopping site. “Kia stepped up. And its consumers are getting nicely styled cars for a little bit less money. That‟s a winning formula.” The payoff for Kia: In recessionary 2009, as global auto sales slid 3.4% from 2008, Kia sold 20% more cars. Last year, its global sales grew 27% to nearly 2.1 million vs. industry growth of 12%. It reported first-quarter profit this year up 91%, to the equivalent of $890 million. Under Hyundai‟s wing Kia‟s resurgence is a sea change from barely a decade ago, when it emerged from a painful bankruptcy brought on by heavy debt, lousy sales and intractable labor problems. The South Korean government coordinated a buyout in 1998 by industrial giant Hyundai Group, whose units included larger carmaker Hyundai Motor. Hyundai, which has a 34% stake and control, brought its rigorous management culture to Kia and replaced top executives. It shored up purchasing power by shrinking and sharing their supplier base and cutting redundancies. In 2002, the two operations — now the Hyundai-Kia Automotive Group — produced 28 vehicle models on 22 platforms (basic chassis architectures). By 2013 they‟ll be making 40 models on just six platforms. Common platforms for a variety of vehicles cut complexity through shared parts and spread development costs over more vehicles. But it would be wasted effort if Kia could not improve its quality in fact and in the minds of potential buyers. A quality initiative launched in 2005 put final approval for new products in the hands of quality-control managers, rather than sales executives, and channeled up to 5% of revenue into research and development. Since 2005 Kia also has spent $9.6 billion on capital investments, including new plants in key markets to better meet local demand and speed delivery. Kia completed its first U.S. plant in 2009 in West Point, Ga., a $1 billion facility with an eventual capacity of 360,000 that created about 3,000 jobs. Last year, it produced 167,000, about 30%, of the vehicles the company sold in the U.S. Kia also doubled its capacity in China with a second plant in 2007. In 2010, Kia set twin benchmarks for improving global quality as measured by average rank in key independent surveys: to be one of the world‟s top three automakers in actual quality within three years and to be in the top five within five years in perceived quality among consumers. “There was a big gap between the actual quality and perceived quality,” Oh says. “Our goal was to narrow that gap.” Designing for success The most visible sign of Kia raising its game has been the new look of its cars and trucks. “We had no distinguishable characteristic. Nothing special. We deliberately set out to emphasize design,” Oh says. When Peter Schreyer, former head of design at Audi and Volkswagen, became available in 2007, Kia pounced. “We needed an outsider, somebody like Peter, to help us see the forest. We were too focused on the trees,” Oh says. Working with designers in Irvine, Calif., and Frankfurt (Kia‟s U.S. and European headquarters, respectively), Schreyer pursued a look that would say Kia. “When you see an Audi or BMW in the street, you immediately recognize it,” Schreyer says in an interview. “It was quite important for Kia to have that signature look. To make a daring step like they did — hiring a Westerner — shows that Koreans were serious and willing to challenge themselves.” Schreyer and his team created straight-line, streamlined designs and settled on a distinctive “tiger nose” front grille — meant to resemble the animal — that would be a common design element across the lineup. “I wanted to give Kia a strong identifier that you‟ll be able to recognize from a distance,” Schreyer says. Starting in 2008, Kia began shipping new and redesigned vehicles with the tiger nose, including an update of its volume Optima midsize sedan. A raft of new and redone models followed, most recently a redesigned 2012 version of the subcompact Rio sedan — with a tiger nose — unveiled for the U.S. in April at the New York auto show. Not just pretty faces, Kias also began winning some key safety awards. The latest-generation Sportage compact SUV, 2011 Optima, the 2010 Forte compact sedan, 2010 Soul small crossover and the redone 2011 Sorento midsize SUV all earned a “Top Safety Pick” ranking in the U.S. from the Insurance Institute for Highway Safety. Getting on shopping lists All Kia‟s efforts were aimed at getting on more consumers‟ new car consideration lists — consumers such as Nancy Strawn, a self-described “car girl” who works at car-shopping site Autotrader.com . The Olympia, Wash., resident went shopping for an SUV in April, but ended up trading her 2009 Toyota Camry for a new Kia Optima sedan. “I never thought I‟d buy a Kia in a million years,” she says. “I always thought they were throwaway cars. But I couldn‟t‟ believe the changes they made.” Positive media reviews helped, and the closer for Strawn was that she could pick up a loaded car with features unexpected at its $27,000 price — heated rear seats, heated and cooled front seats, panoramic roof, 274 horsepower, plus 35 miles per gallon on the highway. “If Kia were to ask me to pay $30,000 for a car three years ago, I‟d have said, „Are you nuts?‟ They wouldn‟t have had a good enough reputation to ask for that kind of money.” Nick Phillips, general manager of Car Pros Kia of Tacoma where Strawn bought her Optima, says it comes down to the vehicles. “We‟re pretty good salespeople. But if they were bad cars, we wouldn‟t have sold that many.” To get more looks from skeptical buyers such as Strawn, Kia is paying more attention to marketing. Its goal: to project a “dynamic and youthful” image globally, along the lines of Volkswagen and Mazda, that would eventually enable more premium pricing for Kia cars, according to company documents. To those ends, Kia relied heavily on sports marketing, including sponsorships of the X Games in Asia, the NBA, Australian Open tennis and the LPGA. Its NBA sponsorship culminated last week in an endorsement deal with Blake Griffin of the Los Angeles Clippers, who became an Internet phenom with his spectacular leap to the hoop over a 2011 Optima in the NBA All-Star Weekend Slam Dunk contest. Kia‟s commercial with the Kia Soul Hamsters — this one featuring them rapping and cruising in the hip little box-shaped car — has been viewed on YouTube more than 1.5 million times. Better buyer experience Kia also knew it had to work on its dealer network and improve its buyers‟ experiences there. For years, Kia was just a tagalong brand for many dealers who saved their best salespeople and most resources for their bigger brands. With more sales now, Kia can demand better. “As Kia picked up sales,” says Edmunds‟ Anwyl, “they can go back and hold dealers accountable. All of a sudden, the Kia franchise is valuable.” In 2009, Kia began to cut dealers it judged were underperforming or not devoting enough resources to their Kia franchise. In 2010 alone, nearly one in five of Kia‟s 4,300 dealers outside South Korea, was new, replaced or terminated. “We have to grow, but we also have to maintain quality of dealers,” Oh says. Tougher road ahead With larger competitors steadying themselves after the recession and Japanese makers recovering faster than expected, Kia will be challenged to maintain its growth rate, Anwyl says.