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 significance 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.
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 main competitive advantage was its lower-paid South Korean workforce—which translated into lower-priced cars.
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 *. In turn Ford contracted Kia to begin production of the Festiva under license for overseas distribution. Concurrently, in Korea the car was badged as the Kia Pride, with local sales beginning in 1986. Starting from 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)
By the early 1990s, a second model based on the Ford Festiva was jointly developed between Kia and Ford. It 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.
Along with many Korean companies Kia Motors began to suffer during the late 1980s and early 1990s from labor problems. Fed up 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. The success of the car was a great relief to Kia, which was simultaneously preparing to enter the U.S. market with its own cars and dealers.
1992 Kia Sephia
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.
Look for Part 5 The IMF Crisis -- its impact of the Korea economy and Kia's re-birth.
This article is from content included in the forthcoming The Hyundai Way book. For more details, seehttp://www.facebook.com/TheHyundaiWay
* 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.