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 able to have a new start--the merger with Hyundai Motor Company setting the stage for both brands to leap forward.
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 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.
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|
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.
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, not to mention 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 not only in Australia, but also 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.
As with 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|
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.
This article is from content included in the forthcoming The Hyundai Way, which will provide readers deep insights into the carmaker’s past, present, and future. Moreover, the book 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
Special thanks again goes to Mark Juhn for his ongoing support and assistance.