Hyundai: Humble and Hungry

September 6, 2010
Hyundai's 2002 XG350 was no milestone of automotive progress. However, the first Korean car to venture beyond a $25,000 price left its mark when Automobile Magazine pitted that entry-luxury sedan against a similarly priced Mercedes-Benz C230 coupe. Back then, Hyundai was clawing its way out of the muck while Mercedes was trolling for bargain hunters.
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The astonishing upshot of our comparison test was that the mighty Mercedes failed to trump the humble Hyundai.
Ever since Hyundai registered on our radar, we've watched its flight path mimic that of the space shuttle Atlantis:
In the past six years, Hyundai's market share in the United States has grown 75 percent, and it is now the sixth best-selling brand here.
In the teeth of the recession, Hyundai Motor Company became the world's fastest-growing carmaker.
Last year, Hyundai passed Ford to temporarily grab fourth place in the global pecking order (behind Toyota, General Motors, and Volkswagen).
During the past two years, Hyundai has been showered with praise. Flattering endorsements have been bestowed by Consumer Reports, Forbes, J. D. Power and Associates, the North American Car of the Year jury, Advertising Age readers, the Wall Street Journal, and even the EPA.
It was not always sweetness and light, however. When Hyundai arrived in the United States in 1986 with the $4995 Excel, it sold 168,882 vehicles, a record for any new importer. Unfortunately, the jokesters descended in packs when Excels began breaking down; the Hyundai name was decoded by some as "Hope You Understand Nothing's Drivable and Inexpensive."
Hyundai considered folding its tent in America, but in 1999, a new ten-year/100,000-mile pow ertrain warranty marked a turning point. According to Hyundai Motor America president and CEO John Krafcik, what was touted as the industry's best guarantee served as a clarifier for the engineering team by forcing them to design systems for "infinite life."
To ascertain how Hyundai became the darling of consumers and critics alike, we polled Krafcik and two key lieutenants instrumental in the company's recent success.
John Juriga, the powertrain director at Hyundai-Kia Motors, works in one of the company's five technical centers located around the globe. In addition to supporting development and emissions certification of both Hyundai and Kia products for the U.S., Juriga's department serves as the parent company's eyes and ears for emerging technology from a sparkling office and lab complex located less than ten miles from AUTOMOBILE MAGAZINE's headquarters in Ann Arbor. Before joining Hyundai in 2003, Juriga was an engineer at GM for nineteen years, where his main endeavor was squeezing extra power from Corvette engines.
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To contrast Hyundai with GM, Juriga used the classic aircraft-carrier-headed-for-an-iceberg scenario: "Five miles out, the captain is alerted to an impending emergency. The GM captain gathers a huge staff to decide what to do. An awesome and comprehensive strategy is plotted before the captain orders an abrupt turn to the right. The ship barely misses the iceberg.
"When the Hyundai vessel's captain is given the distress call, only a few subordinates are summoned. A decision is made, and right-turn instructions are issued. Other officers are concerned because they weren't consulted, but the ship avoids the iceberg by miles. Precise course corrections are worked out long after the emergency has subsided."
Juriga has also noticed major differences in his access to top corporate management. "During my hiring process, I was interviewed by Dr. H. S. Lee, who was a top executive at Hyundai. I thought 'Wow, I never met a president of GM.' Dr. Lee is now the vice chairman in Korea heading all research and development. I recently dropped in to his office without an appointment for a casual discussion. He visits us here two or three times a year to find out what's going on. That easy access to top management makes all the difference in how we design and develop new powertrains.
"At GM, I was considered too aggressive with risk taking. My boss usually responded to my suggestion by saying 'Good idea. But save it for next year.' Here, we thrive on improvement opportunities. When a change is implemented at the last minute, what we call Hyundai Speed is our means of getting the idea validated and certified for production. I know of no company that's quicker on its feet than Hyundai.
"While every company pays attention to its customers and benchmarks the competition, Hyundai doesn't assume that it knows exactly what buyers want. When I evaluate a car, my opinion doesn't count. Instead, we strive to find out what our customers appreciate and their innermost desires. That's different from the GM approach, where customer feedback is considered but most final decisions are made by vehicle line executives and engineers who believe they know best."
John Krafcik joined Hyundai Motor America six years ago after stints at the GM/Toyota NUMMI joint venture and Ford. When he was an MIT MBA student in the mid-1980s, he coined the term lean (versus mass) production to sum up the means by which the best carmakers-especially Toyota-had achieved major reductions in engineering and manufacturing effort, production space, inventory, development time, and defects. In other words, Krafcik has a profound understanding of how to plan, engineer, and sell automobiles with utmost efficiency.
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"In virtually every Hyundai building around the world," explains Krafcik, "you'll find a conference-room sign stating the company's philosophy in three words: Diligence, Frugality, Harmony.
"I didn't think that motto was very sexy at first, but the meaning quickly sank in. I soon found out that Hyundai is the hardest-working car company on the planet. That's the Diligence part. At our R&D center near Seoul, the engineers arrive by 7 a.m. The company buys dinner to encourage them to work late, so most stay until 10 p.m. That schedule runs five days a week plus two Saturdays per month. Our success has been product driven. The steep rate of improvement in our models is directly attributable to hard work and a highly effective engineering system.
"Under the Frugality heading, the commodity we're most frugal with is time. Another way to explain this is 'Hyundai Speed' -- we prefer to make decisions as late in the gestation process as possible. Hyundai not only accepts, it actually embraces, late changes to enhance our customer responsiveness.
"When I arrived here, the previous-generation Sonata was in the final development stages. Most car companies freeze their designs about five months before job one. Upon first sight of the Sonata, I noticed an old-fashioned aluminum wheel design with clip-on balance weights. I knew it was too late to switch to the smoother-appearing Euro-flange wheels that use the more palatable tape-on weights. As it turns out, a change that I thought would be impossible was remarkably easy to achieve. Only three months after my request, new wheels had been designed, tooled, and validated for production.
"About five years ago, we were interviewing a senior Toyota engineer for a job at Hyundai. Part of the process is determining what potential employees think of us. We had recently topped Toyota for the first time in an Initial Quality Study [(IQS), by J. D. Power]. The recruit told an amazing story about how his team picked the Hyundai with the steepest rate of improvement for analysis to determine what was behind our quality gains. They purchased Santa Fes built in four successive model years and took them apart to study their evolution.
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"Toyota's policy is to bundle changes for implementation at each major model change. What was discovered during the Santa Fe analysis is that we make 100 to 200 product changes every year in response to customer and dealer suggestions to fix that or to improve this. Alterations in both door-seal designs and in the shape of the metal surfaces is how we remedied a major wind-noise issue. So a key difference between us and Toyota is continuous design change. We're continually tinkering with our designs to make them better even when it means extra work for the engineering team.
"The third word in our motto, Harmony, is enabled by Hyundai's lean organization. What may seem like not enough personnel to get the job done becomes its own advantage. At Toyota Motor Sales, there are more than forty people with vice president and above titles; we have five at that level. Considering the bureaucratic drag and the time required to get every Tom, Dick, and Harry to sign off on decisions, it's amazing Toyota gets anything done. We work at Hyundai Speed to make decisions very quickly. This is how we achieved a four-year full product replacement cycle in the highly competitive compact segment versus a six-year cycle for the current Honda Civic and Toyota Corolla."
Krafcik signs internal memos and e-mail with a "stay humble, stay hungry" closing. "Now that we're doing fairly well," he explains, "we're concerned about feeling satisfied and complacent. To counteract that syndrome, we never set a business goal we know how to hit. The Koreans wouldn't necessarily say it this way, but staying humble and hungry helps keep us focused on delivering more to our customers. Innovation closes the gap between the goal we don't know how to achieve when we set it and where we finally end up."
Sharing the glories of Hyundai's work ethic and engineering speed in ways that customers can understand is Chris Perry's job as the company's new vice president of marketing. During the past three years, Perry and his friend for twenty-five years, Joel Ewanick, were the Joe Montana and Jerry Rice of the car marketing world. That is, until Ewanick left Hyundai last March for Nissan before being recruited a few weeks later by GM. Perry was promoted to the marketing vice president's job in May.
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Hyundai's strategy for shining its light brightly is what Perry calls "big voices in big places." "What it takes to slice through the advertising clutter is a lot of trust from upper management," he explains. "I enjoy a near carte blanche in making decisions related to how and where we present Hyundai to our customers.
"While some Korean managers have struggled with American culture and marketing, my current boss understands what we're trying to do. At the 2008 Olympics, when Michael Phelps was going for his eighth gold medal, an advertising slot right after his race suddenly opened up. On a Thursday, I suggested that we should seize the opportunity. Gaining consensus took ten minutes, and our ad ran the following Sunday. This is an excellent example of Hyundai Speed.
"To help customer perception catch up with the reality of the product improvements we've achieved, we've been the largest Academy Awards advertiser the last two years. When GM gave up that position, we made the decision in seven days to take their place. We get three or four executives in a room, make up our minds, and move forward.
"Last year, when the Genesis won the North American Car of the Year award, we couldn't wait to deliver that news to Super Bowl viewers. Jeff Goodby, then the head of our advertising agency, noted that many folks -- including some journalists -- didn't know how to correctly pronounce our name. Over a cup of coffee, a few of us scratched out his concept for a message that would address that. Krafcik and others here loved the idea, so it was approved for production. Goodby shot and directed the commercial, and three weeks later it ran during the Super Bowl. We exercised creative license with our competitors in Tokyo and Munich, and all of them took it in stride. That whole project was completed in roughly one-third the amount of time usually required."
Hyundai has also demonstrated an uncanny ability to make lemonade out of the lemons that blossomed during the recent recession. "Our Hyundai Assurance initiative was well received by buyers fearing loss of employment. But others see it as peace of mind, so we've expanded that program to include roadside assistance, the best warranty, and top Initial Quality scores. Eventually, we might even drop the job-loss provision, because Assurance has evolved into strong Hyundai brand credibility and growing confidence in our products."
The word assurance does have a warm and fuzzy ring, so Hyundai is wise to keep it as part of its lexicon. But, considering the solid foundation that Juriga, Krafcik, Perry, and hundreds of other hard-working Hyundai people have laid, another word near and dear to this organization deserves its day in the sun. We'd love to see a hot sports car join today's family of coupes, sedans, and crossovers. Toward that end, here's our suggestion for what to call that new model: Hyundai Speed.
Hungry Tiger
The Hyundai Motor Company has demonstrated prodigious growth and success at conquering tall odds. Even as most Westerners were unable to correctly pronounce its name, Hyundai became the world's fifth-largest carmaker and a company bristling with potential. As the following time line reveals, this Korean tiger is on the prowl.
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1915
Chung Ju-Yung, Hyundai's founder, is born to peasant parents. His teenage dream is to become an industrial magnate.
1940
Chung's A-Do Service car-repair shop burns to the ground. The operating motto for the rebuilt venture is "quick repair, quick delivery."
1946
Chung purchases land in Seoul and erects a Hyundai Motors Industrial Co. sign for his growing repair business. In Korean, hyundai means modernity and is pronounced "hyon-dae."
1950
Various Hyundai enterprises are destroyed during the Korean War. Undaunted, the Hyundai construction company builds a residence for General Dwight Eisenhower in fifteen days in 1952.
1968
The new Hyundai Motor Company joins with Ford to assemble the Cortina, the first car manufactured in Korea.
1976
After splitting from Ford, Hyundai collaborates with Italdesign and Mitsubishi to create the Pony, Korea's first indigenous automobile.
1986
More than 165,000 Excels are sold when Hyundai enters the U.S. market.
1991
Hyundai begins building the first engines of its own design.
1998
Hyundai purchases Kia Motors.
2000
New Hyundai chairman Chung Mong-Koo establishes the goal of becoming one of the world's top five carmakers.
2001
Founder Chung Ju-Yung dies. Four of his eight sons still head Hyundai-related companies. Chung Mong-Koo declares that Hyundai needs to eclipse Toyota's quality within five years.
2004
Hyundai ties with Honda for second place, behind Toyota, in a J. D. Power Initial Quality Study (IQS). A new proving ground in California and an assembly plant in Alabama near completion.
2006
Hyundai finishes third behind Porsche and Lexus and ahead of Toyota in the IQS.
2009
The Hyundai Genesis is named North American Car of the Year.

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