The rise of Korea

How Hyundai and Kia blindsided the world to form an automotive superpower

ASH WESTERMAN

COULD anyone who bought a Hyundai Excel in 1986 – the first year a model from the Korean brand was offered in Australia – have possibly envisioned the trajectory this automotive juggernaut would be on in 2017?

Fact was, the X1-gen Excel was a fairly lamentable offering, yet still a significant achievement for a car company that had really only been building cars for export since the Pony of 1976.

To fully grasp the path of the Korean car industry, we need to understand that its rise was preordained, born partly from ambition, but mostly out of necessity. South Korea is a small, populous country with limited natural resources and was once one of the world’s poorest nations.

In the early ’60s, the country’s leaders knew that transitioning into a manufacturing powerhouse was the key to prosperity.

Major General Park Chung-hee (1917-1979) came to power via a military coup in 1961 and is the leader credited as a pivotal figure for the Korean automotive industry. That was thanks, in part, to a five-year development plan that was to effectively light a fire under the then-fledgling carbuilding business. The immediate banning of imported cars (see sidebar p.21) would instantly make locally assembled vehicles the default choice for Koreans, while the dropping of import taxes on incoming automotive components gave a clear incentive to Korean companies to become assemblers of semi- and completely knockeddown kits (CKD).

Hyundai was founded in 1946, but morphed into the automotive company we know today in 1967, and quickly moved into a partnership with Ford to assemble Cortinas. Generous government subsidies were available for companies entering into joint ventures with international partners in order to acquire technological expertise. Kia – originally a manufacturer of bicycle parts founded in 1944 – jumped into the cot with Honda, although Kia’s first passenger car was the Mazda Familia-based Brisa of 1974.

The foundation stone of Korea the Car Builder had been set.

TIMELINE

1967

Hyundai Motor Company founded.

Kia built its first Mazda-licensed truck five years earlier

1976

Hyundai Pony exported to Chile and Argentina, among others

1986

Hyundai enters the US market with the Pony Excel (left); sells 168,800 cars, a record for first-year sales. Hyundai enters the Australian market via importer Bond Motor Sales

1992

Kia Motors America is incorporated in the US

1995

Third-gen Excel becomes Australia’s top-selling light car

1998

Financially stricken Kia is taken over by Hyundai

2002

The arrival of the Getz (right) sees Hyundai with another light car sales winner

2003

Hyundai sets up its own factory-backed Australian operation

2006

Kia hires ex-Audi gun Peter Schreyer (left) as chief design officer

2007

Hyundai achieves critical acclaim with the European-devised i30 hatch (above); wins numerous Aussie awards

2011

Hyundai Australia hits 87,008 units, capturing 8.6 percent of the total local market

2014

Korea exports 3 million units, worth US$49billion K

But it was the heady, turbulent ’80s before Australians were urged via an ad campaign to “say hi to Hyundai”. The brand’s local presence had its beginnings in Western Australia, thanks to Perth motor body builder, Danny Fisher, who saw potential in affordable, well-marketed Korean cars for Aussies. Fisher convinced business tycoon Alan Bond to bankroll the venture. Bond agreed only if hugely successful WA usedcar whizz John Hughes was on board. Enter the 1986 Excel. (John Hughes Hyundai in WA would go on to be the world’s biggestselling Hyundai dealer for seven consecutive years between 1992 and 1999, outselling every Hyundai dealer in the USA, Canada, UK, Europe, Asia, and South America.)

By 1995, the third-gen X3 Excel had become Australia’s favourite light car, wooing customers with its then-revolutionary ‘drive-away’ pricing and generous warranty, rather than any dynamic genius.

It wasn’t until 2003 that Australia saw the arrival of a full factory operation, which would see initial annual sales of around 34,000 accelerate to 87,000 by 2011, and pass 100,000 in 2014.

It hasn’t been one big upswing, of course. Kia was on solid ground in the late ’70s assembling, among other things, the 604 for Peugeot and Fiat’s 132 sedan. But by 1981 the Korean Government had introduced ‘rationalisation measures’ which assigned specific vehicle types to individual companies. The outcome of this, followed much later by the Asian economic crisis, would see Kia on its knees in bankruptcy by 1998.

In came Hyundai to the rescue, taking a majority stake.

Surely Kia’s most significant directional shift, though, came with the recruiting of Peter Schreyer as design chief in 2006.

This was the point when Kia made design one of the real cornerstones of its brand, and set the course it’s now on, with the likes of Optima and of course, 2017’s Stinger.

But it hasn’t just been about the product. Skilful marketing has also played a key part. In the USA, for example, Hyundai’s highconcept incentives – like buying back your car if you lost your job – drew buyers in without costing a fortune. Kia’s marketing in the US has been both perplexing and, to many, annoying (YouTube the brilliant rapping hamsters TV ad for the Soul), but it’s done a great job at getting Kia noticed.

Veteran auto executive heavyweight Bob Lutz had this to say: “Japanese executives, in my experience, often get tangled up in history, tradition, and the supposed superiority of their culture, but I’ve found Korean leaders to be bold, tough, gregarious, and open to new ideas. This is in stark contrast to the rows of stone-faced Japanese execs at intercompany meetings, where little was ever said or accomplished. The Koreans are not hung up on their culture: They hire the best, Korean or not. It’s their strength. They accept risk.”

On this latter point, witness the arrival of ex-BMW engineering guru Albert Biermann to Hyundai (with influence at Kia), who is set to transform the Koreans’ dynamic abilities, launch Hyundai’s N Division, and move the motorsport operations up a gear.

As for Hyundai’s ambition, well, that’s encapsulated in one word: Genesis. Launching a luxury brand at this turbulent stage of the automotive timeline, as alternative power sources, autonomy, and disruptors like Google and Uber reshape the business entirely, takes massive commitment. Can the Koreans do it? Is the Genesis line-up – with no premium SUV in sight until 2019 – strong enough?

Is there enough time before the automotive business as we know it is no longer recognisable?

It’s a huge call, but don’t bet against the Koreans. Their pockets are as deep as their determination.

KIA NOW

Builds more than 3 million vehicles a year in 13 manufacturing and assembly operations in eight countries

HYUNDAI NOW

Fifth-ranked automotive group in the world, building nearly 5 million vehicles annually

“The Koreans are not hung up on their culture: They hire the best, Korean or not. It’s their strength. They accept risk”

BOB LUTZ, VETERAN US CAR CZAR

Protect & serve

Korea once had one of the most rigid protectionist policies in place to keep foreign imports out of its market. The initial ban on imports lasted 25 years, and didn’t relax until 1986, when cars over 2.0-litres were permitted, albeit with a 60 percent tariff. Two years later, sub- 2.0-litre imports were allowed to filter in, but again, slammed with a 60 percent tariff as well as a tangle of paperwork and safety checks.

By 1994, the tariff on imports was down to 10 percent, but there was still a big hurdle for importers trying to build a business case in Korea: public perception. This fiercely nationalist population saw owners of foreign cars as unpatriotic, especially during the Asian financial crisis of the late ’90s, when owners of German premium cars complained that they were the targets of abuse, vandalism, and even denied service at fuel stations.

PARDON ME?

When other car companies face off against Hyundai and Kia, they’re also fighting a government that considers Hyundai’s success a matter of national honour. When company chairman Chung Mong-koo was convicted in 2007 of embezzling $110 million for illegal political donations, his three-year sentence was suspended before the government pardoned him, saying he was needed “to continue to contribute to the development of Hyundai Motor Group”.