hyundai and kia motors the early years and product development pdf

Chapter 1 The Pony ‘Since the early 1960s, Korean firms have entered into partnership arrangements with international carmakers, including Nissan Datsun, Toyota, Mazda, Fiat, and Ford..

Hyundai and Kia Motors

The Early Years and

Product Development

By Donald G Southerton

Hyundai and Kia Motors

The Early Years and Product Development

By Donald G Southerton

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‘eBooks Coffee, Cars, and Corporations: Thoughts on Korean Business and Popular Culture

‘More Thoughts on Korean Business and Popular Culture: Volume 2

Copyrignt © 2012

By

Donald G Southerton All rights reserved

109876

Library of Congress Cataloging.in-Publication Data

Southerton, Donald G 1953-

ISBN 978-1477694381

Contents

‘Acknowledgements Foreword

Chapter1 The Pony

Chapter 2 The Excel

Chapter3 Brisato the Pride

Chapter 4 The Pride, Sephia and Sportage Chapter The IMF and Rebirth

Chapter 6 The Road to Recovery Endnotes

‘About the Author

Acknowledgements

‘This book’s content is buit upon considerable historical and contemporary research In crafting this work, Ihave benefited enormously from many, My first thanks must go to the Hyundai and Kia Motors organization for sharing thelr

culture and accomplishments,

| also owe @ special thanks to Mark Jun, longtime Hyundai and Kia Motors! senior executive and international automotive authority His ongoing support and assistance is deeply appreciated

‘This book would also not be possible without the strong support of family and fiends; | would ike to express my appreciation to Diana Southerton Rudloff for proof reading and editing, and Anna Cash-Mitchell for design and eBook

formatting

Foreword

‘Considerable content for this eBook came from the forthcoming publication The Hyundai Way, which will provide readers deep insights into the carmaker’s past, present, and fulure Moreover, The Hyundai Way captures for the first time in the English language, Hyundai's unique corporate culture, management model,

‘expectations, and vision,

For more details, see

hhtp:/wwr facebook com/TheHyundalWay

Chapter 1 The Pony

‘Since the early 1960s, Korean firms have entered into partnership arrangements with international carmakers, including Nissan (Datsun), Toyota, Mazda, Fiat, and Ford In particular, the Korean government and key industrial groups forged these alliances as the best way to introduce advanced automotive technology to South Korea In 1987, Hyundai Group entered the auto sector as a result of both the founder Chung Ju Yung's early ties to the car repair business and growing

government pressure,

Partnering with Ford Motor Company through an Overseas Assembler

‘Agreement, Hyundai looked to assemble Ford compact cars imported as knockdowns (CKD) Ford, in tur, would transfer technology and explicit

knowledge, such as blueprints, technical specications, production manuals, and training of Hyundai engineers,

Interestingly, to accomplish the task Hyundai gathered team members from its

‘construction division who had excellent skills in project management and

‘engineering backgrounds, Hyundal also recruited talent with experience in

produclion fom the Korean auto industry Together with support from a team of 10 engineers dispatched from Ford, the Korean engineers, technicians and Construction workers lived together in a makeshift structure near the plant,

working 16 hours a day, seven days a week Following the Hyundai model for taking immediate action and leveraging their background as a construction

‘company, the Hyundai Ford plant was operational in 6 months, a record at that time for the 118 Ford assembly plants around the wort

Initial car production at the plant focused on 2 madels—first the Ford Cortina Mark land soon after the Ford Granada Mark Il Production targeted the South Korean domestic market with some limited export and production numbers grew trom 614

‘cars in 1968 to 7,009 in 1973

‘The Pony Meanwhile by 197, the Korean state-run Economic Planning Board (EPS)

formulated The Long-Term Pian for Promotion of the Automobile Industry In a policy-shit from CKD partnerships, the government mandated Korea's four

leading automobile companies—Hyundai, Daewoo, Kia, and SsangYong—to

‘submit detalled plans to develop a ‘Korean’ car by 1975,

Following similar tactics imposed across business sectors to build an import- substitution economy, the Korean government coerced automakers to embrace

the new mandate or face restrictions in their current operations Hyundai, a strong adherent ofthe stale-corporate alliance, soon submitted a master plan for a new plant with a capacity of 80,000 Korean cars per year

To meet the challenge, Hyundai approached 26 fis required technologies in five countries to acquire +10 firms in Japan and Italy for car design

+ 4 firms in Japan and the United States for stamping shop equipment

+ 5 firms in the United Kingdom and Germany for casting and forging plants + 2 ims in Japan and U.K for engines

+ and 5 U.S and U.K firms for an integrated parts/components plant

‘As with the company's entry into shipbuilding and other technology ventures, Hyundai looked to the West for expertise They soon hired former British Leyland Motor president Sir George Henry Tumbull as their new vice president Tumbul

in turn, hired five other top British car engineers: Kenneth Bamett for body design, engineers John Simpson and Edward Chapman, John Crosthwaite as chassis

‘engineer and Peter Slater as chief development engineer

‘Turnbull's exit trom his position at British Leyland followed in the wake of the mergerirestructuring of BMH and Leyland Motors, As a parting git, he was,

however, allowed any car from the lineup He left with two Morris Marinas, a sedan and a coupe—cars Tumbull had developed, The Hyundai team used the Marinas as a base to develop the Hyundai Pony Turnbull also brought with him the vision of using standard chassis to produce varying cars,

In addition to Turnbull and his engineering team, the exterior design would come

‘rom the West with noted craftsman Giorgetto Giugiaro and the ltalDesign studio Founded in 1968 by Giugiaro and Aldo Mantovani as Studi taliani Realizzazione Prototpi Sp.A the studio would become best known for its automobile design work, along with offering project management, styling, packaging, engineering,

‘modeling, prototyping and testing services to manufacturers worldwide,

Hyundai's new Pony was a true collaboration of design, engineering, and

production For example, the engine, transmission, and suspension were all from

‘a previous model of the Mitsubishi Lancer Mitsubishi Motors supplied the ‘engines in 1200cc and 1400cr sizes ITAL designed three and five-door

(hatchback) body styles to ft on the basic Marina-styled floor pan,

‘The Hyundai cars borrowed heavily from Cortina design with MacPherson strut front suspension but retained the rear leaf springs Parts costs were kept low by

‘sourcing locally whenever possible Parts also came from Hyundai's Ford Cortina plant supply line (The Ford relationship had been severed in part due to the {government mandate for independent production.)

Hyundai continued its reputation to meet government mandate deadlines and by late 1975 the Pony with 90% domestic content was in production, This made Korea the second nation in Asia, in addition to Japan, to have its own domestic automobile The car was offically released to the public in January 1976

‘The Pony Blueprint

‘The Pony was sold in three-door hatchback, four-door fastback, five-door wagon, and pick-up variants

‘George Turnbull continued to serve as a vice-president and director of the Hyundai Motor Company until the fall of 1977 when he left to join Iran National Motor Company

Chapter 2 The Excel

‘On February 20, 1986, Hyundai Motor Company began seling the Excel, their latest production model, in the United States Building on the success of the original 1975 Pony and then an updated 1982 Pony Il, by the mid-80s Hyundai

‘was ready to introduce a new front wheel drive X-1 modal They were also

confident enough to tackle the world's largest car market—the United States,

Hyundai X-1 Excel

Following a common practice in the automotive industry, the X-1 was badged Under a number of names depending on the market For example, in Korea a sedan version was sold as Hyundai Presto, while in Europe the new X-1 kept the original Pony badge For Americans, the X-1 would be known as the Excel—with a reputation for low cost, breaking sales records and, sadly, a tainted quality

image

Beginning in 1976 and prior to launching in North America (with Canada in 1985), Hyundai was exporting the original Pony to a number of markets Today litle Tecognition is given to these overseas operations and the teams that led these

‘efforts Early Pony export markets included + Honduras, Guatemala, Panama, El Salvador, Ecuador, Colombia, Chile,

Argentina, and Paraguay in Central & South America

+ Egypt, Bahrain, and Oman in the Middle East

+ Nigeria, Gabon, Sierra Leone, and Ivory Coast in West Attica, with Greece in Southeast Europe

To test the Northern European markets, Hyundai opened their first overseas’ subsidiary “Hyundai Motor Holland” in 1978 Presented in January 1979 at the Ral Motor Show held in the Netherlands, the Pony was then introduced locally in, the Netherlands, Belgium and Luxembourg later that year In 1980, the car was launched in the UK.

Hyundai Motor Holland (Photo courtesy Mark Juhn)

Ina broader context, this international effort was part of the Korean government's

‘push fora strong export-driven economy The X-1 would play an important role in {urthering this plan To produce the new Excel, Hyundal invested an estimated

‘$500 milion in Korean production facilities with an annual capacity of 300,000 cars The Excel launch also marked a new milestone for Korea and Hyundai—

‘sufficient mass production capacity, localization of parts, and the logistics to tackle the world's largest car market Entering the U.S market was critical not only to Hyundai's success but also for the Korean car industry to survve in the global automotive market As today, few small car OEMs can survive when economies of

scale are needed to keep cost down and the companies profitable,

Expectations within the Hyundai organization and their United States subsidiary were high in the months leading to the U.S, launch In particular, car dealers

‘actos the U.S were eager to acquire a low cost import brand Hyundai Motor ‘America would receive over 2.000 applications for 150 dealerships, Record Sales

‘When launched in 1986, the Excel was offered in a variety of trims and body styles With prices starting at $4,995, the Hyundai Excel appealed to many,

{Quickly setting a record in only 4 months for an OEM selling the most automobiles in the first year of business Reflecting popular opinion Fortune Magazine even voted the Excel "Best Product #10." Excel sales for 1986 reached an impressive 168,862 cars Moreover, Hyundai Motor Company Korea's cumulative production topped one milion vehicles

Its affordable (Butyoutdneverknowit)

1986 Hyundai Motor Ad

‘The Excel was popular and perceived to be competitive when compared to the

‘growing number of Japanese imports of the mid 1980s Sadly, quailty issues soon surfaced Common complaints were that the body panels were wavy, the paint faded and window cranks were often fauly As a result of consumer perception, sales dropped and a number of dealerships abandoned their franchises Frankly, this is no surprise Americans with their love of cars have long been harsh on models not lving up to expectations That sald, the attacks on the Excel never

‘approached those against the Yugo or even American models, for example the Ford Edsel ofthe 1950s In reality total sales by the end of the second year were

considerable at 263,610 vehicles in a down US car market

Lessons Learned

Despite a dectine in sales and tarnished image, rather than dropping out of the world's largest automotive market Hyundai would leam from the Excel By the late 1990s and early 2000s and with leadership changes at Hyundai Motor Company, the OEM would invest heaviy in the long-term R&D, design, manufacturing, and

‘quality oftheir vehicles More significantly, a bold "10-year, 100,000 mile

Warranty” introduced in the U.S in 1998 compelled the OEM to improve quality or the company would sutler huge financial consequences covering the warranty repairs, This improved quality along with gradually improving consumer perception

of the cars heralded what is seen today as a remarkable transformation in brand image and sales at record pace.

Chapter 3 From the Brisa to the Pride

Kia Motors is one of the world's fastest moving global automotive brands It has

‘earned a reputation as an industry leader in design styling along with a fll ine of {fuel-efficient vehicles that have earned critical acclaim and dramatically increased consumer awareness Interestingly, the carmaker had early roots as a Korean biaycle and motorcycle manufacturer Inthe early 1960s, the Kia Motors Company moved beyond bicycles and

motorcycles to produce a highly practical K3E0 three-whee!utlity truck Across much of Asia, similar vehicles met a demand for reliable low cost commercial

‘transportation that could transport goods and products often in tight urban areas, Based on the Mazda Mazdago design, the K360 also signaled Kia Motors’ long technology alliance with the Japanese automaker with a number of cars and tucks eventually licensed from Mazda

During this era of budding Korean economic development, strong technology ties with foreign partners were common For example, other Korean fitms entered into partnership arrangements with international carmakers, including Nissan (Datsun), Toyota, Fiat, GM, and Ford Korean industrial groups desiring to enter the car sector forged these alliances to gain advanced automotive technology and know-how In addition, the government implemented strong trade protectionism in

an effort to bulld a selt-suficient import substitution economy In particular, the Korean Automotive Industry Promotion Law required cars to be manufactured

locally versus imported from foreign markets

‘When pressured by the government to produce Korea assembled cars, Kia Motors leveraged their strength as an engineering-based company and chose not

to assemble compact cars imported as knockdowns (CKD), unlike Hyundai, Asia Motors, or Shinjin Automotive Company Instead, Kia set up a full-scale production plant with considerable local sourcing of parts,

‘Sohari In 1978, Kia s Sohari plant opened with initial production of a pickup version of the Brisa Drawing on the on-going relationship with Mazda, the Brisa was based on the second generation Mazda 1000, which was marketed as the Familia in

Japan"