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Hyundai's 'overnight' success a 20-year project

Posted by Bill Griffith  March 1, 2010 11:06 AM

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2011-Hyundai-Sonata-607.jpg

The 2011 Hyundai Sonata gets up to 32 mpg and is more fuel efficient than the Toyota Camry and Honda Accord. (Hyundai)

Presidents' Day Weekend was a happy time at Herb Connolly Hyundai in Natick, a high point in a stretch that saw the dealership post a 20 percent sales increase last year and be on track for a 25 percent increase in 2010.

Owner Doug Connolly sees only good things ahead. "The brand quality is outstanding. People finally are taking notice and starting to associate Hyundai with quality," he says. "We've got the all-new Tucson SUV and the all-new mid-sized Sonata in stock. People who never would have considered a Hyundai come in and drive one, and they're blown away. Hyundai is spending millions on technology and development, and producing a superior product."

John Wolkonowicz, senior auto analyst for IHS Global Insight in Lexington, is equally bullish on the brand. "Hyundai has come a long way...and they're still underappreciated. The truth is they're as good as Honda or Toyota, but the American public isn't ready to believe it."

To some, the rise of Hyundai [that's "dai" as in day, not "dai" as in die] seems to be an overnight success story. In truth, it's the culmination of a decades-long struggle. The company burst on the U.S. market in 1986 with the Excel, a $4,995 vehicle that filled a void in the entry-level market that was being ignored by domestic automakers.

The car was an instant hit, selling 263,610 units that year and 264,282 the next. Then disaster struck. "After 18 months, people realized it was a disposable car," says Dave Zuchowski, vice president of national sales for Hyundai. "That left us with a negative image, one we struggled with from 1989 to 1999."

The company was at a critical juncture. Should Hyundai abandon its U.S. market or give it one more go? The turning point was a then-unheard-of 10-year, 100,000-mile powertrain warranty announced in 1998. "At the time, given our reputation, it was an outrageous statement," says Zuchowski. "The message came from the top on down. Every engineer, designer, and assembly-line worker knew they were at risk of killing the company if they didn't produce."

A decade later, Hyundai is in the midst of its second 24/7 program, a stretch that will see it introduce seven new models within 24 months. Already, the new 2010 Tucson is out and the 2011 Sonata is just arriving in showrooms. Coming this summer is the Equus, which will give the company a position in the $60,000 luxury market. The production version of the Equus will be unveiled in April at the New York Auto Show along with Hyundai's plans for a 2.0-liter direct injection engine for the Sonata, and the company's hybrid plans.

"In Korea, Hyundai is a premium brand," says Wolkonowicz. "Their internal goal is to be No. 1 in the world, and the Koreans are relentless. Hyundai is among a handful of brands that I think will surprise people in this decade." For the record, his other picks are Ford, General Motors, and Volkswagen.

That's still in the future. For the present, says Hyundai's Zuchowski, "we still have to close the perception gap among potential buyers. We're in a neutral spot now. The number who would consider us went from 22 percent to the mid-30s in the past year. That's a nice number, but Honda and Toyota have a 60 percent-plus number. So there's work to be done."

While Hyundai is moving fast, there's an awareness of trying to do too much too soon. They don't want to find themselves in the position Toyota is in, its image hit by numerous recalls, falling values, and fewer buyers.

But Hyundai said Wednesday it was voluntarily recalling 5,000 of the brand-new, U.S.-built Sonatas for front door locks that can stick in the open position. About 1,300 cars have been delivered to customers.

"Our company culture is one of speed," says Zuchowski. "What happened at Toyota is a good sanity check for us. It's easier to have world-class quality when you only build entry-level and mid-sized vehicles. It gets more complex when you're a full-line manufacturer. We consider Toyota a fabulous competitor. Any OEM [original equipment manufacturer] looks at the Toyota situation and says, 'There but for the grace of God go we.'"

Still, speed has been a Hyundai trademark.

Its 2009 Assurance program to buy back a new Hyundai if the purchaser lost his job "went from the back of a napkin to implementation in 37 days," says Zuchowski. "There was a risk of using an advertisement based on losing your job, but it struck a chord among the public."

So did last summer's program guaranteeing gas prices of $1.49 per gallon for a year when the price of fuel was fluctuating wildly.

So did fronting the money to dealers to implement "Cash for Clunkers" three-and-a-half weeks before the government got its program in place. "That program was made for Hyundai. We're known for having the best fuel economy (30 miles per gallon as a fleet average) and J.D. Power quality ratings. We hit that one [Cash for Clunkers] out of the park," says Zuchowski.

Hyundai was one of three companies to see sales increase last year, along with sister company Kia and Subaru.

"We don't expect the stars to align for us like that again in 2010," says Zuchowski. "We have learned that both manufacturers and dealers can make money in a smaller sales market, that supply and demand is a good regulator, that excess inventory is a killer."

Natick's Connolly, meanwhile, is just happy at Hyundai's present place and pace. "The buzz is incredible. Our market share is increasing. I'm excited about where the brand could go," he says. "The sky's the limit."

This blog is not written or edited by Boston.com or the Boston Globe.
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