The following is a report on the performance of Hyundai and Kia brands in the US. The Jamaican market has largely resisted the models, which were introduced some twenty years ago.

ONCE thought of as a joke, Hyundai and Kia has transformed into value brands in the US market.

Six years ago, the two South Korean automotive brands, Hyundai and Kia, accounted for one of every 25 new cars sold in the US.

So far this year, one of every 11 new vehicles sold nationwide was either a Hyundai or a Kia.

The brands’ growth represents what auto industry observers say is a remarkable transformation into a quality-driven value brand from an automotive underdog, and it’s having an impact on Wisconsin auto suppliers.

“What the South Koreans have done so well in the last several years has been their massive improvements in quality and their ability to take chances in their design elements to make exciting cars in traditionally boring segments,” said Jesse Toprak, vice-president of industry trends and insights for car pricing site TrueCar.com.

Back in the 1990s, Toprak was working at auto dealerships in Janesville and Rockford, Ill. A US$10,000 Hyundai Accent back then would have been worth about US$2,500 just a year later, he said.

“They had the worst resale values in the industry,” Toprak said. “They were a joke.”

No one is laughing now.

The emergence of the South Korean brands over the past decade coincides with a declining market share for the Detroit-based car makers. The South Koreans are also taking market share from other Asian brands.

Based on sales so far this year, Hyundai and Kia together were just ahead of Honda, with a market share of more than nine per cent

“Considering where they were 15 or 20 years ago when they started, they’ve done a remarkable job,” said David Cole, chairman emeritus at the Ann Arbor, Michigan-based Centre for Automotive Research.

“It’s all tied to good execution, and they’re doing it.”

Hyundai and Kia combined ranked fourth in global vehicle sales last year, ahead of Ford Motor Company, and are now eyeing more growth to climb even further in the rankings, analysts say.

“It’s history repeating,” said Morningstar auto industry analyst David Whiston. “They’re at the point Toyota reached awhile back, where you have fantastic product at a really good value, and the perception of them being an inferior quality brand is dying pretty fast.”

“They are becoming a powerhouse that is a force to be reckoned with,” said Gabriel Shenhar, senior auto test engineer and programme manager for Consumer Reports.

“Hyundai makes no bones about it — they want to surpass Toyota,” Shenhar added.

The growing influence of the South Korean brands has created business opportunities for auto parts suppliers based in Wisconsin.

Through its acquisition of a latch-and-liftgate unit of Delphi in 2008, Strattec Security Corp. of Glendale diversified its product mix beyond the Detroit carmakers and added a sales and engineering office in South Korea to serve Hyundai/Kia.

Strattec makes the power sliding doors and liftgates for the Kia Sedona minivan and power liftgates for the Hyundai Veracruz crossover SUV.

Strattec’s sales to Hyundai/Kia jumped by US$2.5 million, or nearly 19 per cent, to US$15.7 million in the fiscal year that ended June 30, said Pat Hansen, chief financial officer.

Johnson Controls Inc., the world’s largest maker of automotive seats, supplies Hyundai and Kia. Last year, Johnson Controls touted an agreement to make seats and other interior products for the Kia Sorento as one of its major contracts.

Both Kia and Hyundai also are incorporating advanced lead acid “start-stop” batteries made by Varta, a unit of Johnson Controls.

Valuable brands

Representatives of some of the largest auto dealership groups in southern Wisconsin say the South Korean nameplates have proved to be valuable pieces of their organisations.

“They are a key part of our retail puzzle,” said Frank Boucher, second-generation family co-owner of the Boucher Automotive Group.

The Boucher Group last year put up a new building for its Hyundai franchise in Waukesha. Its Boucher Kia store in Milwaukee is a former Saturn dealership — a brand eliminated by General Motors. Boucher also has a Kia franchise in Racine.

Based on the vehicles that are traded in for Hyundais and Kias, Boucher said, they are grabbing customers from other brands.

“You see the trade-ins, it’s everything,” he said.

The customer base has changed along with the quality of the cars, Boucher said. “They used to be entry-level buyers, but not anymore.”

Russ Darrow Jr, CEO of the Russ Darrow Automotive Group, has Kia franchises in Wauwatosa, Waukesha, Madison, Fond du Lac and Appleton.

Darrow said he recognised the potential of the brand when he signed on for the franchises. The gamble paid off. His dealerships will take as many Kias as they can get.

“We’re dying for more inventory,” he said.

These days, every sale is crucial in the auto industry. “Market share changes, even tenths of a point, are so critical,” Darrow said.

Giant leap in quality

The South Korean brands have bucked the usual trend of manufacturers achieving very incremental progress on quality, design and reliability between redesigns, Consumer Reports’ Shenhar said.

“Whereas 15 years ago, Hyundai and Kia used to be at the bottom of every category, they started to climb up with every redesign they made,” Shenhar said. “For Hyundai and Kia, the jumps are not incremental. They are giant.”

The quality and design gains are coupled with what industry observers say are savvy marketing moves.

Hyundai began advertising during high-profile events like the Super Bowl and Olympics. And it launched an attention-grabbing campaign during the Great Recession that told buyers they could return their car if they lost their job.

All of this occurred after the South Koreans all but blew up their business model of the late 1980s and early 1990s and started over.

“When they kind of relaunched the brand, they came out with a 100,000-mile warranty, bumper to bumper, as a way of saying ‘Hey, we’ve overcome our quality problems,’ and it worked for them,” said Bruce Belzowski, assistant research scientist at the University of Michigan Transportation Research Institute. “It really helped their reputation.”

For now, look for the South Koreans to continue scrapping for market share.

“I think everybody now takes them seriously,” Toprak said. “Consumers who would not even consider their cars in the past are looking at them a lot more closely.”