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Hyundai Motor notes successes, one ‘oops’

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Oct 16,2006
BEIJING ― Hyundai Motor Co. executives in China like to boast that the media there have coined a term, “Hyundai speed,” referring to the rapid growth of Beijing Hyundai Motor Co. over the past four years. “Hyundai was the last among foreign automakers to enter China,” said No Jae-man, the general manager of Beijing Hyundai, in a recent interview with the JoongAng Daily. “As a latecomer, we had to speed up our management procedures, from decision-making on model selection and factory location to setting up sales and distribution networks.” Since its start in October 2004, the joint venture of Hyundai Motor and Beijing Automotive Industry Holding Co. has leaped to the position of No. 4 carmaker in China behind Shanghai General Motors Co., Shanghai Volkswagen and First Automotive Works Corp. During the first eight months of this year, Beijing Hyundai sold 182,185 vehicles. The speedy expansion was also possible because of its alliance with 79 car-parts suppliers, Mr. No said. Its main partner is Hyundai Mobis Co., which set up shop in China at the same time. According to the Korean executive, three factors go into making an auto company competitive: quality, price and brand recognition. Mr. No said Hyundai had successfully captured the eye of Chinese consumers as a producer of relatively low-priced quality cars. But the brand value question is one that Hyundai still has to tackle in the world’s fastest-growing auto market. “What concerns me the most right now is how to boost the brand power of Hyundai here. We have reached a point when we should develop our brand image as a high-quality premium vehicle,” Mr. No said. The 57-year-old executive explained that the tens of thousands of taxis in Beijing with Hyundai nameplates may have become more of a detriment than an advantage in boosting that brand image. As part of a plan to revamp its image in preparing for the 2008 Beijing Olympics, Beijing began replacing its 67,000 taxis in January 2005. Helped by its Chinese partner, Beijing Hyundai was designated as a key supplier, selling 24,500 units of Elantra compact cars and Sonata sedans last year, or 75 percent of the new taxis put on the road that year. The size of that order boosted Hyundai from its fifth-place ranking in 2004 to fourth last year. But, Mr. No sighed, people here still associate taxis with rattletraps and inferior automobiles. That’s just the opposite, he said, of perceptions in Korea. Beijing Hyundai and Hyundai Motor headquarters in Seoul are now looking at marketing countermeasures, he said. Some programs already in place to boost Hyundai’s brand image include sponsorship of soccer teams and cultural events such as pop and classical concerts. The carmaker has also invited large numbers of Chinese people to tour its auto plants, including groups of ordinary citizens, politicians, journalists and students. Mr. No also mentioned the crowded market in China as another challenge both for Hyundai Motor and for other carmakers. “Supply has outpaced demand,” he said, “and the situation will obviously get worse. Surviving the fierce competition in the Chinese car market will require further price cuts. Beijing Hyundai’s operating profit has been on a downward spiral despite the sales pickup lately, and was approximately 6 percent last year.” Because of the market growth, China is a battlefield for more than 100 overseas and domestic automakers. The profit margin of Chinese automakers as a group declined to 4 percent last year, below the average level of the entire manufacturing sector for the first time, because of surging prices of raw materials and falling auto prices. Despite the problems, China is a significant manufacturing base with low labor costs, and that eases some of the pain for Beijing Hyundai. Also, China’s geographical proximity to Korea, only about an hour’s flight away, makes supplying car parts for Korea from China more cost-effective than obtaining them from any other foreign source. The carmaker’s vehicle factory, with an annual production capacity of 300,000 units, is in operation now. With its second plant scheduled to open next year, Beijing Hyundai will be rolling out 600,000 units per year. The government approval for the second plant came after Hyundai accepted a demand by the Chinese government to build a research and development center there. Countering its Chinese partner’s proposal for a large R&D center for engine development, Hyundai agreed to build a smaller one for design and market research. by Seo Ji-eun


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