Hyundai and Kia Motors The Early Years and Product Development By Donald G Southerton
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More Thoughts on Korean Business and Popular Culture: Volume 2 Copyright 2012 By Donald G. Southerton
All rights reserved.
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Library of Congress Cataloging-in-Publication Data
Southerton, Donald G. 1953-
ISBN 978-1477694381 Contents
Acknowledgements Foreword Chapter 1 The Pony Chapter 2 The Excel Chapter 3 Brisa to the Pride Chapter 4 The Pride, Sephia, and Sportage Chapter 5 The IMF and Rebirth Chapter 6 The Road to Recovery Endnotes About the Author
Acknowledgements
This book s content is built upon considerable historical and contemporary research. In crafting this work, I have benefited enormously from many. My first thanks must go to the Hyundai and Kia Motors organization for sharing their culture and accomplishments.
I also owe a special thanks to Mark Juhn, longtime Hyundai and Kia Motors senior executive and international automotive authority. His ongoing support and assistance is deeply appreciated.
This book would also not be possible without the strong support of family and friends; I would like to express my appreciation to Diana Southerton Rudloff for proof reading and editing, and Anna Cash-Mitchell for design and eBook formatting. Foreword
Considerable content for this eBook came from the forthcoming publication The Hyundai Way, which will provide readers deep insights into the carmaker s past, present, and future. Moreover, The Hyundai Way captures for the first time in the English language, Hyundai s unique corporate culture, management model, expectations, and vision.
For more details, see http://www.facebook.com/TheHyundaiWay
Chapter 1 The Pony
Since the early 1960s, Korean firms have entered into partnership arrangements with international carmakers, including Nissan (Datsun), Toyota, Mazda, Fiat, and Ford. In particular, the Korean government and key industrial groups forged these alliances as the best way to introduce advanced automotive technology to South Korea. In 1967, Hyundai Group entered the auto sector as a result of both the founder Chung Ju Yung s early ties to the car repair business and growing government pressure.
Partnering with Ford Motor Company through an Overseas Assembler Agreement, Hyundai looked to assemble Ford compact cars imported as knockdowns (CKD). Ford, in turn, would transfer technology and explicit knowledge, such as blueprints, technical specifications, production manuals, and training of Hyundai engineers.
Interestingly, to accomplish the task, Hyundai gathered team members from its construction division who had excellent skills in project management and engineering backgrounds. Hyundai also recruited talent with experience in production from the Korean auto industry. Together with support from a team of 10 engineers dispatched from Ford, the Korean engineers, technicians and construction workers lived together in a makeshift structure near the plant, working 16 hours a day, seven days a week. Following the Hyundai model for taking immediate action and leveraging their background as a construction company, the Hyundai Ford plant was operational in 6 months, a record at that time for the 118 Ford assembly plants around the world.
Initial car production at the plant focused on 2 models first the Ford Cortina Mark II and soon after the Ford Granada Mark II. Production targeted the South Korean domestic market with some limited export and production numbers grew from 614 cars in 1968 to 7,009 in 1973.
The Pony Meanwhile by 1973, the Korean state-run Economic Planning Board (EPB) formulated The Long-Term Plan for Promotion of the Automobile Industry. In a policy-shift from CKD partnerships, the government mandated Korea s four leading automobile companies Hyundai, Daewoo, Kia, and SsangYong to submit detailed plans to develop a Korean car by 1975.
Following similar tactics imposed across business sectors to build an import- substitution economy, the Korean government coerced automakers to embrace the new mandate or face restrictions in their current operations. Hyundai, a strong adherent of the state-corporate alliance, soon submitted a master plan for a new plant with a capacity of 80,000 Korean cars per year.
To meet the challenge, Hyundai approached 26 firms in five countries to acquire required technologies: • 10 firms in Japan and Italy for car design • 4 firms in Japan and the United States for stamping shop equipment • 5 firms in the United Kingdom and Germany for casting and forging plants • 2 firms in Japan and U.K. for engines • and 5 U.S. and U.K firms for an integrated parts/components plant.
As with the company s entry into shipbuilding and other technology ventures, Hyundai looked to the West for expertise. They soon hired former British Leyland Motor president Sir George Henry Turnbull as their new vice president. Turnbull, in turn, hired five other top British car engineers: Kenneth Barnett for body design, engineers John Simpson and Edward Chapman, John Crosthwaite as chassis engineer and Peter Slater as chief development engineer.
Turnbull s exit from his position at British Leyland followed in the wake of the merger/restructuring of BMH and Leyland Motors. As a parting gift, he was, however, allowed any car from the lineup. He left with two Morris Marinas, a sedan and a coupe cars Turnbull had developed. The Hyundai team used the Marinas as a base to develop the Hyundai Pony. Turnbull also brought with him the vision of using standard chassis to produce varying cars.
In addition to Turnbull and his engineering team, the exterior design would come from the West with noted craftsman Giorgetto Giugiaro and the ItalDesign studio. Founded in 1968 by Giugiaro and Aldo Mantovani as Studi Italiani Realizzazione Prototipi S.p.A., the studio would become best known for its automobile design work, along with offering project management, styling, packaging, engineering, modeling, prototyping and testing services to manufacturers worldwide.
Hyundai s new Pony was a true collaboration of design, engineering, and production. For example, the engine, transmission, and suspension were all from a previous model of the Mitsubishi Lancer. Mitsubishi Motors supplied the engines in 1200cc and 1400cc sizes. ITAL designed three and five-door (hatchback) body styles to fit on the basic Marina-styled floor pan.
The Hyundai cars borrowed heavily from Cortina design with MacPherson strut front suspension but retained the rear leaf springs. Parts costs were kept low by sourcing locally whenever possible. Parts also came from Hyundai s Ford Cortina plant supply line. (The Ford relationship had been severed in part due to the government mandate for independent production.)
Hyundai continued its reputation to meet government mandate deadlines and by late 1975 the Pony with 90% domestic content was in production. This made Korea the second nation in Asia, in addition to Japan, to have its own domestic automobile. The car was officially released to the public in January 1976.
The Pony Blueprint The Pony was sold in three-door hatchback, four-door fastback, five-door wagon, and pick-up variants.
George Turnbull continued to serve as a vice-president and director of the Hyundai Motor Company until the fall of 1977 when he left to join Iran National Motor Company. Chapter 2 The Excel
On February 20, 1986, Hyundai Motor Company began selling the Excel, their latest production model, in the United States. Building on the success of the original 1975 Pony and then an updated 1982 Pony II, by the mid-80s Hyundai was ready to introduce a new front wheel drive X-1 model. They were also confident enough to tackle the world s largest car market the United States.
Hyundai X-1 Excel
Following a common practice in the automotive industry, the X-1 was badged under a number of names depending on the market. For example, in Korea a sedan version was sold as Hyundai Presto, while in Europe the new X-1 kept the original Pony badge.i For Americans, the X-1 would be known as the Excel with a reputation for low cost, breaking sales records and, sadly, a tainted quality image.
Beginning in 1976 and prior to launching in North America (with Canada in 1985), Hyundai was exporting the original Pony to a number of markets. Today little recognition is given to these overseas operations and the teams that led these efforts. Early Pony export markets included: • Honduras, Guatemala, Panama, El Salvador, Ecuador, Colombia, Chile, Argentina, and Paraguay in Central & South America • Egypt, Bahrain, and Oman in the Middle East • Nigeria, Gabon, Sierra Leone, and Ivory Coast in West Africa, with Greece in Southeast Europe.
To test the Northern European markets, Hyundai opened their first overseas subsidiary Hyundai Motor Holland in 1978. Presented in January 1979 at the Rai Motor Show held in the Netherlands, the Pony was then introduced locally in the Netherlands, Belgium and Luxembourg later that year. In 1980, the car was launched in the UK.
Hyundai Motor Holland (Photo courtesy Mark Juhn)
In a broader context, this international effort was part of the Korean government s push for a strong export-driven economy. The X-1 would play an important role in furthering this plan. To produce the new Excel, Hyundai invested an estimated $500 million in Korean production facilities with an annual capacity of 300,000 cars. The Excel launch also marked a new milestone for Korea and Hyundai sufficient mass production capacity, localization of parts, and the logistics to tackle the world s largest car market. Entering the U.S. market was critical not only to Hyundai s success but also for the Korean car industry to survive in the global automotive market. As today, few small car OEMs can survive when economies of scale are needed to keep cost down and the companies profitable.
Expectations within the Hyundai organization and their United States subsidiary were high in the months leading to the U.S. launch. In particular, car dealers across the U.S. were eager to acquire a low cost import brand. Hyundai Motor America would receive over 2,000 applications for 150 dealerships.
Record Sales When launched in 1986, the Excel was offered in a variety of trims and body styles. With prices starting at $4,995, the Hyundai Excel appealed to many, quickly setting a record in only 4 months for an OEM selling the most automobiles in the first year of business. Reflecting popular opinion Fortune Magazine even voted the Excel Best Product #10. Excel sales for 1986 reached an impressive 168,882 cars. Moreover, Hyundai Motor Company Korea s cumulative production topped one million vehicles.
1986 Hyundai Motor Ad
The Excel was popular and perceived to be competitive when compared to the growing number of Japanese imports of the mid 1980s. Sadly, quality issues soon surfaced. Common complaints were that the body panels were wavy, the paint faded and window cranks were often faulty. As a result of consumer perception, sales dropped and a number of dealerships abandoned their franchises. Frankly, this is no surprise. Americans with their love of cars have long been harsh on models not living up to expectations. That said, the attacks on the Excel never approached those against the Yugo or even American models, for example the Ford Edsel of the 1950s. In reality total sales by the end of the second year were considerable at 263,610 vehicles in a down U.S. car market.
Lessons Learned Despite a decline in sales and tarnished image, rather than dropping out of the world's largest automotive market Hyundai would learn from the Excel. By the late 1990s and early 2000s and with leadership changes at Hyundai Motor Company, the OEM would invest heavily in the long-term R&D, design, manufacturing, and quality of their vehicles. More significantly, a bold 10-year, 100,000 mile Warranty introduced in the U.S. in 1998 compelled the OEM to improve quality or the company would suffer huge financial consequences covering the warranty repairs. This improved quality along with gradually improving consumer perception of the cars heralded what is seen today as a remarkable transformation in brand image and sales at record pace. Chapter 3 From the Brisa to the Pride
Kia Motors is one of the world's fastest moving global automotive brands. It has earned a reputation as an industry leader in design styling along with a full line of fuel-efficient vehicles that have earned critical acclaim and dramatically increased consumer awareness. Interestingly, the carmaker had early roots as a Korean bicycle and motorcycle manufacturer.
In the early 1960s, the Kia Motors Company moved beyond bicycles and motorcycles to produce a highly practical K360 three-wheel utility truck. Across much of Asia, similar vehicles met a demand for reliable low cost commercial transportation that could transport goods and products often in tight urban areas. Based on the Mazda Mazdago design, the K360 also signaled Kia Motors long technology alliance with the Japanese automaker with a number of cars and trucks eventually licensed from Mazda.
During this era of budding Korean economic development, strong technology ties with foreign partners were common. For example, other Korean firms entered into partnership arrangements with international carmakers, including Nissan (Datsun), Toyota, Fiat, GM, and Ford. Korean industrial groups desiring to enter the car sector forged these alliances to gain advanced automotive technology and know-how. In addition, the government implemented strong trade protectionism in an effort to build a self-sufficient import substitution economy. In particular, the Korean Automotive Industry Promotion Law required cars to be manufactured locally versus imported from foreign markets.
When pressured by the government to produce Korea assembled cars, Kia Motors leveraged their strength as an engineering-based company and chose not to assemble compact cars imported as knockdowns (CKD), unlike Hyundai, Asia Motors, or Shinjin Automotive Company. Instead, Kia set up a full-scale production plant with considerable local sourcing of parts.
Sohari In 1973, Kia s Sohari plant opened with initial production of a pickup version of the Brisa. Drawing on the on-going relationship with Mazda, the Brisa was based on the second generation Mazda 1000, which was marketed as the Familia in Japan.ii
Brisa Pickup
In conjunction with manufacturing the Brisa pickup, Kia Motors also began production of 1-liter gas engines. While the competition sourced engines from their foreign partners, this marked the first Korean company to manufacture its own engines. In the first year of production, 65 percent of the parts in the Brisa, including the engine, drive shaft and clutch, were manufactured in Korea. This local sourcing was strongly encouraged by the Korean Government and the ratio of locally produced parts increased steadily over the years.
In the fall of 1974, the first Kia Brisa S-1000 four-door sedans rolled off the Sohari production line. Overall the Brisa was a success with 75,987 sold between 1974 and 1981. In 1975 the Brisa pick-up also became the first Kia to be exported when a number were shipped to Qatar in the Middle East.
Brisa Sedan, Sohai Plant
Oil Shock Notably, what spurred the Brisa s early success was actually its small 1000cc engine displacement. Starting in 1973, an international oil shortage forced gasoline prices to skyrocket along with creating a supply shortage in Korea. Veteran Hyundai and Kia Motors executive Mark Juhn who began his career with Shinjin Motors noted that the oil shock had a devastating impact on Kia s rival newly formed and much larger General Motors Korea, a joint-venture company between GM and Shinjin Motors. Juhn shared that with high gas prices Korean consumers favored the Kia Brisa and its smaller more economical engine over GM Korea s first production model, the Chevrolet 1700 with a larger 1700cc engine. Juhn points out, I could say the oil shock brought good luck to Kia but GM Korea struggled.
Steady Growth By 1976 Kia also strengthened its position in the commercial vehicle sector by purchasing Asia Motors based in Kwangju, South Korea. Asia Motors manufactured heavy trucks, buses, and a line of military vehicles. In addition, to meet growing demand in Korea for cars, Kia even started CKD assembly of the Fiat 132 sedan, along with the Peugeot 604, a larger model sedan.
Government Intervention Despite Kia s successes, government intervention imposed new mandates over much of the growing Korean economy. Direct competition was regulated across many sectors of industry. In 1981, Kia Motors was told to stop producing cars and concentrate instead on light commercial vehicles. In turn, more light truck and van models were added, including the 1-ton Bongo, the Ceres pick-up and some larger truck models.
Ford Alliance By the mid-1980s the Korean Government decided to change policy and relax its restrictions on the car and truck companies. Kia was allowed to return to car production. Working with the Mazda s Ford alliance, Kia Motors began to produce the Festiva (known as the Pride in Korea). Export to the U.S. began in 1988. The venture was extremely successful with 300,000 Festivas being shipped overseas between 1988 and 1993.
Chapter 4 The Pride, Sephia, and Sportage
Political and economic forces had long impacted the growth of the South Korean carmakers, including Hyundai, Daewoo, SsangYong, and Kia Motors. Despite the country s economic success in the 1960s and 1970s, the growth model South Korea pursued was not immune to new challenges that would hit the country. In particular, two events would have significant impact on the country s economy: the 1987 democratic transition and the Asian financial crisis of 1997-98.
Kia Motors, which had grown into Korea s second largest carmaker, would soon experience both international success and its own demise the latter leading to a second chance under parent company Hyundai Motor.
New Strategy By the mid 1980s, Kia's strategy looked overseas. They planned to fill the void at the low-cost end of the automotive market which was slowly being abdicated by the Japanese brands pursuing sales of more expensive models with higher profit margins. Compared to rival automakers in Japan, and also Europe and North America, Kia's competitive advantage was its lower-paid South Korean workforce which translated into lower-priced cars.
The Festiva Meanwhile and well-timed for Kia, Ford Motor Company requested its Japanese partner Mazda to design a car for the US market the Ford Festiva.iii In turn Ford contracted Kia to begin production of the Festiva under license for overseas distribution. In Korea the car was badged as the Kia Pride, with local sales beginning in 1986. Starting in mid-1987, Kia began exporting the Ford Festiva to Canada, with a US launch later that year. This plan aligned well with Kia strategy. Over the life of the Festiva in the United States, Kia would export roughly 350,000 units.
1986 Ford Festiva (Kia Pride)
Second Generation By the early 1990s, a second model based on the Ford Festiva was developed jointly between Kia and Ford. This model retained most of the drivetrain of the previous model with a more rounded body style. This second generation model was slightly longer, wider, more aerodynamic, and suspended by MacPherson struts in the front and a torsion bar axle in the rear. Production of this model was in parallel to the first generation Festiva. The new model was introduced in 1993 as the Ford Aspire in North America and Kia Avella in South Korea and other markets.
Sephia Along with many Korean companies Kia Motors began to suffer during the late 1980s and early 1990s from labor problems. Dismayed with low pay and poor working conditions, South Korea's workers rebelled during this period. Union strikes forced many companies to significantly raise wages. The labor uprising was actually just one part of a much larger movement begun in the 1980s to dismantle South Korea's authoritarian political and economic framework.
Seeing growth as a solution to not only rising labor costs but also strong competition from rival Hyundai and Daewoo, in 1992 Kia developed the Sephia, a compact four-door sedan. The first generation Sephia was loosely based on the Mazda Familia (BG). The car quickly became the best selling automobile in South Korea.
1992 Kia Sephia
Meanwhile Kia invested heavily in the early 1990s to expand their production capacity. This expansion included a steel plant and a second manufacturing facility in Hwasong.
During this timeframe, plans also called for establishing a US subsidiary Kia Motors America. In part, Kia was confident in its ability to enter the US market since the company was already selling cars in about 80 foreign countries and building a total of more than 500,000 cars annually. Moreover, for the US market, Kia bet heavily on its ability to market the Sephia and another new model, the Sportage (launched in 1993 in Korea). The big draw for Kia products was their low price compared to other cars with similar performance and quality. Over the next few years overseas sales would improve steadily. That said, by early 1997, the Asian Financial Crisis, called the IMF Crisis in South Korea, would rip through the region. Kia s debt load would make the automaker extremely vulnerable.
Chapter 5 The IMF and Rebirth
Few events in recent history have impacted South Koreans as significantly as the 1997-98 Asian financial crisis, commonly called the IMF Crisis. Thousands of Koreans lost their jobs and lifesavings as the crisis rocked the foundations of most Korean industrial groups or chaebol. In fact, no fewer than five major chaebol failed early in the crisis amid others who had to petition for bankruptcy. In the end, as many as 18 of the largest 30 chaebol would risk bankruptcy, and no more than a handful of the top 30 groups were seen as financially sound.
For Kia Motors the IMF Crisis would be devastating. Although overseas sales and growth were steady, by early 1997 with ever-increasing development and labor costs, Kia found themselves heavily in debt.
Perhaps of equal concern, Kia's difficulties were also a signal of problems throughout the South Korean automobile industry. The big three Korean automakers Hyundai, Kia and the Daewoo Motor Company had created more capacity than needed for the once rapidly growing Korean domestic market. Adding to the pressure were plans by the Samsung Group to enter the car market, building a state of the art plant with the assistance of Nissan.
When the IMF Crisis ripped through the region, Kia s debt load made the automaker extremely vulnerable. Strapped for cash, Kia looked to the government for an emergency loan. Meanwhile, an increasing number of Korean companies began to suffer similar financial challenges and they, too, sought government assistance.
In reaction to the crisis, international credit agencies downgraded the ratings of Korean banks. This led to a tightening of credit, which made it nearly impossible for debt-laden companies, Kia included, to borrow additional funds. As the economic situation grew worse across South Korea, domestic car sales plummeted, further impacting Kia s dwindling revenue and cash flow.
By October 1997 it was clear that additional funding for the beleaguered Kia would not be forthcoming from private banks. With few options, the government took over the company and placed Kia in a receivership in order to stave off bankruptcy and job losses.
Looking deeper A number of other factors also contributed to the collapse of Kia Motors. Some were beyond the control of its management. Others included the practice of Kia Motors and most Korean chaebol of seeking market share regardless of the impact on financial markers, such as high debt-equity ratios and cross loan guarantees to affiliates. To gain a better understanding we need to look deeper.
First, the company s profitability suffered prior to the IMF Crisis. In particular, excessive domestic market competition was triggered by Daewoo s interest-free sales campaigns from the early 1990s. Kia also carried a growing burden of debt as a result of over-expansion of production capacity in its domestic and overseas plants. Moreover, Kia made huge investments to develop and then ramp-up production of their own passenger car models, the Sephia and Sportage.
Next, following the model of Korea s most successful industrial groups, such as Hyundai, Daewoo and Samsung, the company sought to diversify their core business by acquiring a steel-manufacturing firm (renamed Kia Special Steel), establish a constructing company (named the Kisan), and form a trading company (named Kia Inter-trade). Most of these new affiliates operated at huge losses and contributed significantly to the mother company s financial crisis.
In addition, and rarely discussed, was the adversarial and costly takeover attempt by the Samsung Group. Kia management barely defended themselves against Samsung s M&A attempts. More damaging, Kia s vulnerability was widely exposed to the finance community during the takeover attempt, causing a sharp drop in their stock market value between 1996 and 1997.
Finally, as a smaller professionally managed and not family-run company, Kia was viewed more harshly by the Korean banks than larger, more diversified and politically connected Hyundai, Samsung and Daewoo. In fact, unlike Kia, the larger chaebol were seen as too big to fail and so critical to the Korean economy that the government would take extreme measures to support and bolster them financially.
Re-birth Once in receivership Kia Motors was soon joined by a growing number of Korean companies. The government was not in a position to manage the growing list of failed firms and, therefore, sought a buyer for Kia Motors. A few foreign investors, including GM and Ford, considered bidding for the company. When terms set by the creditors were seen as unfavorable, both GM and Ford stepped aside, leaving Hyundai, Daewoo, and Samsung still highly engaged in a bidding war.
Posturing itself well, Hyundai eventually won the bid and purchased a controlling interest in its former rival Kia Motors. Fortunately, for Kia Motors the Hyundai Group acquisition was an opportunity for a new start.
Chapter 6 The Road to Recovery
The 1997-98 IMF Crisis forced dramatic restructuring across South Korea s car industry. Daewoo Motors, once a market leader, fell with the demise of the mother group and GM acquired their Korean manufacturing facilities. Samsung s budding car division was sold to Renault, while SsangYong Motors entered into a protracted receivership. In contrast, Kia Motors was given a new start the merger with Hyundai Motor Company set the stage for both brands to leap forward.
New Management For Hyundai and Kia Motors, new management came at a time of considerable restructuring of the company and was led by Chung Mong Koo, the son of the Hyundai Group founder. Initially, the restructuring was a combination of fiscal cuts across the company along with consolidation of duplicate services, such as R&D and parts manufacturing, between the two brands. A new marketing plan for the brands was also launched with Kia focusing on the younger and stylish consumer and Hyundai targeting an older, more mature customer.
Following his family s hands-on management style, Chung Mong Koo personally not only oversaw the merging of Kia's operations with Hyundai Motor but also encouraged employees and inspected quality as he toured production lines.
Earlier in his career, Chung Mong Koo had managed a number of Hyundai Group companies, including the automotive after-sale service division. From his experience working with consumers, Chung Mong Koo knew the damage to the Hyundai reputation because of shoddy products, not to mention the high cost of warranty repairs. Quality was set as a top priority and the management team formulated a strategy that benchmarked the world s best car brands, mandated higher production standards, and declared that poor workmanship was not acceptable.
Hyundai s Bold Move Amid the rapid changes at Hyundai and Kia in Korea, their overseas operations saw challenges. As noted earlier in this series, Hyundai s overseas reputation suffered from quality issues in the years following the launch of the Excel. Over time, sales dropped significantly.
By 1998 the situation in the U.S. worsened. This was due in part to the fallout of the IMF Crisis in Korea rippling into Hyundai s overseas operations and also to the discontent among Hyundai customers and dealers over quality issues. In a bold move at a historic dealer conference, Hyundai Motor America announced America's Best Warranty a 10 year, 100,000 mile coverage of the brand.
Industry experts have long suggested the warranty marked the turnaround of Hyundai in the U.S. market. Mark Juhn, Hyundai Motor America s CEO at the time of the announcement notes, When Hyundai announced the 10 years 100,00 miles warranty in October, 1998, it was like burning its boat, no way out. If the crew could not put out the fire, they [Hyundai] would burn and die. Juhn further explained that the warranty compelled the OEM to improve quality or the company would suffer huge financial consequences covering the warranty repairs.
Santa Fe Concurrent with the restructuring, Hyundai began production of its first SUV. Introduced for the 2001 model year, the Santa Fe became a milestone for the company, not only since it was developed during restructuring, but also because the SUV was a huge hit with the American buyer. Marking a trend we see today, the Santa Fe was so popular that Hyundai dealers had trouble at times meeting demand. For Hyundai Motor America, the Santa Fe was a needed addition to the brand s U.S. subsidiary with just four models in its line up (the Accent, the Elantra, the Tiburon, and the Sonata).
2001 Hyundai Santa Fe
Kia Motors So, how did Kia Motors fare? Removing itself from court receivership just 22 months after it nearly went bankrupt, Kia was in full recovery and showing a profit by 2000. In part, this was due to synergy of the merger and ''tough restructuring,'' as noted by Uhm Sung-yong, a former Kia Motors vice-president. Providing some sense of the task that included slashing the workforce and corporate size, Uhn remarked, "Everyone had to go through restructuring during the IMF crisis. But ours was the toughest .
That said, sales domestically and abroad drove much of the recovery thanks to the popularity in Korea of the Carnival, Carstar, and Carens minivans, and in the overseas markets, the U.S. included, to the Sephia and Sportage.
Expectations Internally Chung Mong Koo replaced Kia s old leadership with handpicked and trusted Hyundai management. Expectations were for these teams to make Kia profitable and efficient as soon as possible. For example, after his tenure as Hyundai Motor America CEO Mark Juhn returned to HMC HQ in Seoul. By late 2000 he was transferred to Kia Motors as COO for their Export Division. Meeting the challenge, Juhn first addressed operational issues. In particular, the existing process for ordering and supplying distributers with vehicles was labor intensive with unpredictable lead times and huge back orders. Seeking an innovative solution, Juhn and his team developed a streamlined production order processing system, the KDCS (Kia Distributor Communication System). The new system provided a dependable method for distributors to track their orders and reduce errors. COO Juhn s next mission was building the brand image and enhancing global awareness. While pondering how to improve Kia s brand recognition Juhn came upon the idea to contact the promoters of the Australian Open Tennis Tournament, one of world s top tennis events. The Open was looking sponsors so with Chairman Chung Mong Koo s approval Kia became a major sponsor of the Grand Slam tennis tournament.
The event was a big hit in Australia and for Kia s distributors and dealers worldwide. As Juhn had hoped, associating the brand with such a high profile event boosted brand recognition along with company-wide pride among teams and management.
Rio Similar to Hyundai, Kia s restructuring marked the introduction of new car models. Launched in 2000, the sub-compact Rio replaced the Pride. This new model was developed independently by Kia and ended Kia s reliance on long time partners Mazda and Ford.
When released in America, the Rio was one of the lowest-priced vehicles available. The Rio also was a welcome addition to Kia Motors U.S. lineup that included the Sephia, Sportage SUV, Sportage 2-Door Convertible, and the new Spectra hatchback.
2000 Kia Rio
Conclusion To conclude, from the 1960s to early 2000s, political and economic forces impacted the growth and development of the South Korean carmakers, including Hyundai and Kia Motors. In addition, the brands at times partnered for technology and design with Ford, Mazda, and Mitsubishi, along with expanding rapidly in Korea and into new international markets.
Despite the failure of Kia Motors to survive the IMF Crisis, the merger with Hyundai led to integrated technology research, development, and manufacturing not to mention the economies of scale needed for the Korean automaker to compete globally with industry heavyweights such as Toyota, Ford, GM, and VW. About the Author
Don Southerton has held a life-long interest in Korea and the rich culture of the country. He has authored numerous publications on culture, new urbanism, entrepreneurialism, and early U.S.-Korean business ventures. Southerton also extensively writes and comments on modern Korean business culture and its impact on global organizations. His firm, Bridging Culture Worldwide, provides consulting, strategy, and training to Korea-based global business. Endnotes i The hatchback model version of the X-1 was also sold in the Mitsubishi Motors in the U.S. from 1987 to 1994 as the Mitsubishi Pr cis. ii Interestingly, Mazda s first production Familia was styled by a young Giorgetto Giugiaro who would go on to design rival Hyundai Motor s Pony. iii Starting in 1979 with a 7-percent financial stake, Ford began a partnership with Mazda resulting in various joint projects. During the 1980s, Ford gained another 20-percent financial stake. Further financial difficulties at Mazda during the 1990s (partly caused by losses related to the 1997 Asian financial crisis) caused Ford to increase its stake to a 33.4-percent controlling interest in May 1996.