CASE: SM-122 DATE: 11/14/03

HYUNDAI MOTOR COMPANY

We are disappointed when what we did is undervalued. But thats the time we feel the need to do something. Mong-Koo Chung, Chairman and CEO of Hyundai Motor Company

Hyundai Motor Company (HMC), the largest automobile company in Korea, went through some tumultuous events since it entered the U.S. auto market in 1986. After a promising beginning, a Hyundai Car became a synonym for a cheap car, suitable only for the lower class or a cheapskate. The following article illustrates how miserable Hyundais U.S. history was: Back in 1998, the wheels were coming off at Hyundai. Leno and Letterman regularly made the shoddy Korean car a punch line to jokes about Yugo. The home office in Seoul couldnt even recruit a seasoned American to jump-start the faltering company. As a last resort, the Korean bosses turned to their corporate lawyer, Finbarr ONeill, an affable Irishman with no experience running a car company. We were a company looking over the precipice, says ONeill. I kept my law license intact as my insurance policy.1 A few years ago, however, a variety of auto mass media began to publicize Hyundais high test scores for content and performance. People working with Hyundai, as well as customers and industry analysts were amazed to see the recent rapid improvement of Hyundai cars in quality ratings and sales. For example, John Wagner, a Hyundai dealer in San Jose, was proud of but surprised at a news release by the Insurance Institute for Highway Safety (IIHS). It stated that the Hyundai 2001 Santa Fe sport utility vehicle earned the highest rating in the 40-mph frontal offset crash tests conducted at the IIHS facilities. He pointed to an Auto World article, which compared the Santa Fe with the Ford Escape, the top selling model in the SUV segment, saying, So if youre doing serious cross-shopping, our advice is to escape the compact-SUV crowd in a Santa Fe. The highest rating of 5-stars by the National Highway Traffic Safety Administration (NHTSA) assigned to the 2002-3 Hyundai Sonata midsize cars was also remarkable. The quality improvements at Hyundai, combined with its timely marketing strategies, had led to a dramatic

Keith Naughton, Finbarr ONeill: Kicking Hyundai to High Gear, Newsweek, January 6, 2003.

Mooweon Rhee prepared this case under the supervision of Professors William Barnett and James March as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of the Stanford Graduate School of Business.

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increase in sales. Hyundai saw its U.S. sales increase 284,902 cars (a 315.8 percent rise) over the 1998-2002 period, while the total sales of other automakers increased by 103.5 percent. Despite this striking growth, however, HMC still observed a considerable discrepancy between the actual and perceived quality of Hyundai cars. Optimists in HMC attributed this to an unavoidable time lag between actual product quality and product reputation, and believed that time will show the truth. However, many executives felt it was necessary to come up with effective strategies to help shorten the time lag and eventually make Hyundais reputation comparable to Toyota and Honda. Suk-Jang Lee, a senior manager at the business strategy and planning team in HMC, said, We are grappling with how to change Hyundais brand identity from cost-saving car to quality-oriented car, but it is not easy. On the other hand, some management groups doubted the wisdom of changing Hyundais brand identity due to the disruptive effects such an action might have. HMC HISTORY AND ORGANIZATION2 HMC was established by Ju-Young Chung in 1967 as a subsidiary of Hyundai Corporation, the biggest Korean Chaebol3 until the late 1990s. HMC increased its size by acquiring Kia Motors (another Korean auto company) in 1998, although Hyundai and Kia continued to operate independently. HMC was the auto sales leader in the Korean domestic market and exported vehicles to over 190 countries. HMC operated the worlds largest integrated automobile manufacturing facility in Ulsan, on Koreas southeast coast. In 1995 and 1996, HMC began production at its new Chunju plant (in southwest Korea) and Asan plant (southeast of Seoul). With a total global production capacity of 2.4 million units per annum, Hyundai had acquired the necessary economies of scale to compete on an equal footing with the worlds leading automakers. As of 2002, these three plants accounted for 1.9 million units while overseas capacity was 500,000 units, led by Hyundais plants in India, Turkey, and China. Hyundai also operated eight Korean and four international research centers, including the new Hyundai-Kia Motors Design & Technical Center in Irvine, California, which opened in February of 2003. Hyundais automotive technology centers employed approximately 4,100 researchers (of which 100 were located in California), with an annual budget of 5 percent of current revenues. In February 1986, Hyundai launched its U.S. subsidiary, Hyundai Motor America (HMA), in Garden Grove, California, and sold its first car, the subcompact Excel, in the U.S. market. In the early years, Hyundai concentrated its sales efforts primarily on the west and east coasts, as well as in the southern states. In 1987, Hyundai expanded into the central portion of the United States, opening a central region office near Chicago. As Hyundai diversified and upgraded its product line, the company began to build nationwide operations and service networks to more effectively serve the needs of dealers and customers. In 1988, HMA opened a $21 million, 300,000 square-foot parts distribution center in Ontario, California. A year after that, HMA opened a $16.6 million, 342,000 square-foot office complex and parts distribution center in Aurora, Illinois. In 1990, it moved its national headquarters to a new 18-acre site in Fountain
2
3

This section was written mainly based on the documents provided by HMC. usually controlled by one family. OUTTHERENEWS, http://www.megastories.com/seasia/skorea/chaebol/chaewhat.htm

A Chaebol is a conglomerate of many companies clustered around one holding company. The parent company is

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Valley, California. In addition to corporate offices, this headquarters also housed HMAs western regional office. As of 2002, Hyundai had four regional offices and approximately 600 dealerships nationwide. In April of 2002, Hyundai broke ground in Montgomery, Alabama for its first U.S. automobile assembly plant, a $1.14 billion investment scheduled to open in 2005 and employ 2,000 people. The facility, to be built on 1,600 acres, was expected to produce 300,000 vehicles per year at maximum capacity. Hyundai planed to increase the capacity to 500,000 by 2010. This plant was regarded by Hyundai and outsiders as a key element in Hyundais plan to become one of the worlds top five manufacturers by 2010. Finbarr ONeill, the president and CEO of HMA, noted that Hyundai would go from having a 4-month pipeline (from Korea) to a much shorter time period.4 Suk-Jang Lee was also full of confidence and emphasized a symbolic advantage: We have had a terrible experience. In 1989, we built a plant in Quebec, Canada. But it ended in a total fiasco after only five years of operation. Now, we know what we learned from this failure. You know, failure teaches success. I believe Hyundai is not such a fool as to duplicate its mistake. It is not difficult to gather that Americans will have a stronger attachment to Hyundai Made in USA than to Hyundai Made in Korea. Many in the U.S. younger generations think Toyota and Honda are American cars. Even some older generations do not know that Lexus, Acura, and Infiniti are Japanese cars. Building plant in the U.S. played a key role. Hopefully, our new plant may contribute to producing such illusion. The company took a major step to becoming a full-line automotive importer/distributor in 1989 with the introduction of its midsize sedan, the Sonata. In 1995, after 10 years in the U.S. market, the Excel was replaced by the all-new subcompact Accent. The compact Elantra sedan debuted in 1991 as a 1992 model, and it quickly became Hyundais best-selling model in the U.S. In 1997, Hyundai introduced the sporty Tiburon coupe, which emerged from the Hyundai California Design Centers two concept roadsters, HCD-I and HCD-II. In the fall of 2000, HMA added two new vehicles to its lineup: the Santa Fe sport utility vehicle and the XG300 sedan. For 2002, the engine displacement of the XG300 moved from 3.0 (XG300) to 3.5 liters (XG350). As of 2003, Hyundai marketed a full line of vehicles including six models in 16 trim levels (left and middle columns in Exhibit 1). The vehicles were developed exclusively by HMC and were fitted with engines and transmissions designed by the Hyundai California Design Center as well as HMC. The right column of Exhibit 1 lists the models against which each Hyundai model competes. We are more likely than other automakers to throw open information on the competing models to the public and help the potential customers easily compare Hyundai cars with their competitors. Hyundai cars are obviously underestimated in the U.S. We have to straighten this out before it gets worse. They should realize that Hyundai cars are competitive goods, said Jong-Yun Kim, a manager at the business strategy & planning team in HMC.

Hyundai Counts on U.S. Assembly Plant to Boost, Autoline, May 14, 2002.

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EVOLUTION OF HYUNDAI LEADERSHIP AND STRATEGY Similar to the business divisions of other Korean Chaebols, HMC was born under the authoritarian, charismatic leadership of Ju-Young Chung, the founding chairman of HMC, and consequently with a unified and centralized management structure. Since the initial ownership structure was totally controlled by Ju-Young Chung and his heirs, the management and ownership of HMC completely overlapped. Its strategic goals and decision-making processes were dominated by the Chung familys centralized dominance and emperorship. However, such a patriarchal ownership and management structure allowed HMC to pursue more autonomy over its external relationships. For example, when HMC entered into a strategic alliance with Ford, Ju-Young Chung declined to transfer his managerial authority to Ford. Also, in 1974, HMC picked Mitsubishi, rather than a member of the U.S. Big-3 or Toyota, as its joint venture partner because this made it easier for HMC to secure strategic autonomy over its own technological and market development. In addition, the full financial and personnel support from HMCs mother company, the Hyundai Engineering & Construction Company, which was also owned and managed by the Ju-Young Chung, provided him with leverage to steer HMC his way. A person who worked with HMC from 1985 to 1996 said (on condition of anonymity)5: Not all executives are affiliated with the Chung family. We had a bunch of talented professional managers. But they never objected to Chairman Chungs directions. More precisely, it was impossible to present different opinions from Chungs. Anyone who raised questions against Chungs decisions should have been prepared to be fired the next day. I would even say that Hyundais entry to U.S. market was led by Chairman Chungs personal ambition. I agree that without Chungs strong drive, Hyundais entry to U.S. could be delayed until its technology is comparable to the Japanese or European automakers. In fact, we needed an expansion strategy until the late 1980s in order to be the #1 Korean automaker and this strategy fitted well with what we call Chungs mode of bulldozer leadership. But it also seems to be true that we learned that projects initiated through personal ambition lead to poor preparation.6 After successfully seeing HMC enter the North American market, Ju-Young Chung handed over the Chairmanship of the Hyundai group and HMC to his younger brother, Se-Young Chung, in 1987. The new leadership infused HMC with a different organizational culture from Ju-Young Chungs regime. Se-Young Chung tried to inspire HMC with the new spirit of harmonious human relations, autonomous management, responsibility management, and equal opportunity,7 and thus drive out the previous owner-oriented emperor leadership by delegating responsibility and authority to professional executives and managers. The change in leadership also led to a change in strategic focus. From 1987 to 1988, Se-Young Chung redesigned the HMC organization with the goal of improvement in production efficiency by reshuffling or merging
5 6

Subsequent quotes in this section are from this interview unless otherwise noted. Ju-Young Chung (1915-2001) made the Hyundai Chaebol Koreas biggest business empire and is called King Chairman by Korean people. His emperor leadership was also reflected in his presidential candidacy in 1992 when his campaign funds and personnel came from Hyundai. I was not a Hyundai employee that time. I was an election campaigner, said a senior manager on condition of anonymity. 7 Hyundai Motor Company, Challenge for 30 Years and Vision for the 21st Century, 1997.

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the division of job functions. The most noticeable change in the organization chart was converting from a functional organization to a divisional organization, which aimed for efficient control and evaluation, developing management motivation and ability, improving the capability to cope with market diversification and cost reduction. These changes allowed HMC to downsize. The democratization of Hyundai was also affected by the political democratization movements in Korean society during the late 1980s. Despite the positive effect of this societal change, most Korean Chaebols faced a sequence of labor-management disputes. HMC was not an exception. The HMCs first labor union was born at the Ulsan plant in 1987 and took the main role of conveying employees voices to the management group. Although Se-Young Chung emphasized that the stable, constructive, labor-management relationship is the starting point for sustaining growth, HMC was drawn into the unprecedented vortex of labor strikes in 1987 and 1988, which resulted in huge sales losses. Moving toward the horizontal leadership required some pain. Workers voices had been restrained by the previous authoritarian leadership. The new leadership listened to their complaints and claims. This is good for HMC in spite of the unavoidable losses. However, the intangible big problem was a loss in confidence in Hyundai from outsiders. Dealers abroad were making phone calls to HMC every day to complain about supply delays and consumers didnt want to drive cars produced by an insecure company. The image of Hyundai that Se-Young wanted was that of a trustworthy company and he thought that his horizontal leadership would have a positive effect. But this panned out badly, at least until the mid-1990s. In fact, HMCs labor union had been regarded as the symbol of the Korean labor movement and had always been in the vanguard of national walkouts. This certainly contributed to the advancement of management-labor relations in Korea, but presented HMC with many difficulties in implementing its strategic decisions. In 1996, Se-Young Chung transferred the title of Chairmanship to his son, Mong-Kyu Chung. Mong-Kyu Chung inherited not only the title but also the leadership style of his father, which allowed HMC a smooth transition with little organizational turmoil. Furthermore, he exerted much effort to make Hyundai a reliable company in the world, and not just in Korea. He established a new vision for achieving a position in the world top-10 automaker ranking in the 21st century by occupying four percent of the world auto market. Thus, the primary strategic focus was placed on the improvement of brand image and consumer satisfaction through more intensive product quality movement, value management, and market globalization.8 Mong-Kyu Chung also introduced the team system into the organization, along with greater emphasis on performance-based compensation. From 1996 through 1998, the labor-management dispute also quieted down, which many people attributed to the persistent humane attitude toward employees over two generations, though such leadership was not working well in its early stages.

Ibid.

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The 1997 East Asian crisis dealt a heavy blow to Korean Chaebols. Half of the top 30 Korean Chaebols, including Daewoo, went into bankruptcy in 1997 and 1998. The Hyundai group also suffered a liquidity crisis. In response to requests from the IMF and foreign companies, the Korean government began to pursue a major reform of the Chaebol system and pushed Chaebols to improve their managerial transparency and professionalism, and spin off unrelated businesses. The Hyundai group was also pressed into an unprecedented restructuring of its businesses. Almost 70 affiliates of the Hyundai group were spun off in 1999 and 2000. However, the Hyundai group was susceptible to public criticism because its restructuring was focused mainly on the distribution of property among the Chung family, rather than on the rationalization of management.9 Among others, HMC was the prime cash cow of the Hyundai group and was allotted to Mong-Koo Chung, chairman from 1999, first living son of Ju-Young Chung, and older cousin of Mong-Kyu Chung. He is the image of his father. He has led HMC to a more hierarchical decision-making structure and he revived the bulldozer type of can do leadership. HMC faced several contexts asking for a timely decision-making, and his leadership helped it work out. However, his strategic direction and organizational structure were not entirely different from the previous ones. In pursuit of the global top-five in 2010, he continued to emphasize the improvement of product quality, management transparency, and brand value. The current organization chart is shown in Exhibit 2. One emerging challenge to the new leadership was how to cope with the warlike labor-management disputes. HMC suffered from nearly seven weeks of labor strike in summer 2003 and caved in to virtually all the unions demands to end the strike. In particular, HMC allowed the labor union to participate in key management decisions.10 It will be interesting to see how Mong-Koo Chungs leadership deals with the unions veto on important decisions. EVOLUTION OF THE HYUNDAI PERFORMANCE IN THE U.S. Hyundai is the Marv Albert of the auto industry its gone from success to oblivion to success11 in the 17 years it had been doing business in the U.S., according to one commentator. Mong-Koo Chung said Hyundais U.S. history substantiated the philosophy of his father, JuYoung Chung, the founding chairman of HMC: It is failures rather than successes that teach us invaluable lessons. It is not necessary to remember ones success. Those should be remembered by others instead. Rather, we should remember our losses and failures. Those who forget their failures will fail again and again. The Initial Stage (1986 to 1988) The U.S. customers response to Hyundais first car was immediate: they sold like hotcakes. Just seven months after its debut in February 1986, HMA sold its 100,000th Excel. Total 1986 sales were 168,882, an industry record for an import car distributor in its first year. Hyundai sales averaged 1,431 units per dealer, another sales record in the U.S., despite having dealers located in only 31 of the 50 states. In 1987, Hyundai sales continued to soar reaching a record number
9

Ki-Won Kim, Study on the Development of Korean Chaebols, Paper Collection of the Korea National Open University, August, 2000. 10 Hyun-Chul Kim, Hyundai Deal Provokes Business, Korea Herald, August 7, 2003. 11 Fred M. H. Gregory, Hyundai Santa Fe: South Koreas Biggest Automaker Adds a Big Mac to Its Menu, Car and Driver, October 2000.

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of 263,610 units and a 2.58 percent market share (Exhibit 3). Hyundais initial sales success to a favorable market structure:

Jong-Yun Kim attributed

The timing of our entry to the U.S. market was ideal in terms of market segmentation. At that time, most automakers tended to produce high-end, highpriced cars. It left a huge vacuum in the entry-level market. They needed a car that fills in the hole. First-time car buyers such as college students and young couples wanted a car that could satisfy their low budget. Thats the Excel. Suk-Jang Lee added lack of information on who is Hyundai as another reason: At the time, few Americans had ever heard of Hyundai and its products. Many of them thought Hyundai was a new Japanese automaker. Some people even regarded Hyundai as a new subsidiary of Honda because their logos are not so discernable at the first glance (Exhibit 4) and their pronunciations sound very similar. You know, the corporate symbol is the centerpiece of the company identity. Therefore, Americans trusted Hyundai believing that its quality would be comparable to Japanese cars. This was an unexpected consequence. Moreover, there were few public and private agencies, which tested the Excel in reliable ways, and they did not quickly make public the test results. This led potential customers to make buying decisions by relying more on available information such as price than on hidden quality information. We enjoyed a honeymoon with customers. They liked our cars without knowing us well. It gave us the blockbuster sales. But the honeymoon did not last long, said Jong-Yun Kim. The Troubled Years (1989 to 1998) It did not take long for customers to realize the Excel had severe quality problems. It was not uncommon to see one stopped on the street with its engine blown. They often observed that car bodies rusted fast and air conditioners did not work on hot days. In 1989, Hyundais sales fell to 183,261 units, a decline of 30.66 percent (Exhibit 3). Such a big drop in sales was a heavy blow to Hyundais business in the U.S. HMA lost two COOs during the latter half of 1989. Dealer profits plummeted, and a number of showcase Hyundai dealerships closed in 1989. Difficulties in finding lenders to finance Hyundai consumer loans forced Hyundai to create its own financing arm in 1990. To make matters worse, J.D. Power and Associates12 began to publicize its rating of Hyundai cars in 1990. As shown in Exhibit 5, Hyundai cars received an average quality score of 2.0 in 1990, the minimum possible.13 A joint edition of The Detroit News and Detroit Free Press
12

J.D. Power & Associates is a global marketing service firm established in 1968, and had been regarded as one of the most popular car rating sources in the U.S. 13 The yearly quality ratings shown in Exhibit 4 were based on Initial Ratings, which had been released by the J.D. Power Consumer Center. The Initial Ratings consisted of six scores across different criteria, and were obtained by J.D. Power from consumer ratings of vehicles after they had owned them for a few months. Among the six criteria, Mechanical Quality, Features & Accessory Quality, and Body & Interior Quality, which were taken from the Initial Quality Study (IQS), were selected because these three criteria directly reflected problems with a

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reported that the IQS (Initial Quality Study) showed Hyundai finished last out of 29 sales divisions, with 230 problems per hundred vehicles. The Excel was among the bottom 10 car models. The Excel models were also rated the worst cars overall for injury claims based on the analyses of insurance coverage and claims data by the Highway Loss Data Institute. The quality ratings provided by Consumer Reports also gave Hyundai cars a bottom score of 1.0 in 1991 (Exhibit 6).14 A senior manager in Consumer Reports said on condition of anonymity, Why dont you guess why Hyundai could get a good score in 1990? Hyundai car owners didnt want to admit that they had made a big mistake. They just pretended that they had the ill luck to see a problem only in their car. But they gave it up in 1991. All this made Hyundai cars a synonym for shoddy products. Shortly after becoming the executive vice president of HMA in 1990, Rodney Hayden got a definite feeling that the image was cheap price, he said in an interview. I wanted to change that to quality that was affordable.15 Although Hyundai tried to regain the momentum it had in its first three years by introducing a new package of lineups, promotions, advertising, maintenance, financing, and dealer incentives, it was a hard trek. One week after being picked to head HMAs new customer satisfaction department, vice president Jack Collins left the company for Infiniti. One source familiar with Hyundai at that time attributed the attrition to tension between HMC and HMA: The Koreans refuse to commit the resources necessary to turn Hyundai around. Korean Management is an oxymoron.16 Hyundais early success gave the HMC management unrealistic ideas about what it could accomplish in the U.S. market. Hyundai attempted to diversify its product mix, but it was not very successful. Although the Elantra debuted in the U.S. in 1991 to bridge the gap between the subcompact 1.5 liter Excel and the family-sized V-6 powered Sonata, it posed a danger to Excel sales because the differentiation between the Excel and the Elantra (powered by a 1.5 liter standard engine versus a dual overhead cam 1.6-liter optional engine) was not great enough to be perceived by the public. HMA also planned to introduce a prestige car in order to escape from the cheap car image, but HMC ignored this plan because its success in domestic sales was enough to satisfy its goal. We were a bit satisfied with our great success in domestic market. In 1992, our goal in the U.S. market was to maintain our share, not to increase it, said Suk-Jang Lee. Given this, Doug Mazza, who inherited HMA in January 1993 as a new executive vice president and COO, put less emphasis on sales reports and more on customer satisfaction and quality control. His efforts were aimed at raising Hyundais IQS scores, but he was disappointed with the next years score (Exhibit 5). In 1993, a USA Today article headlined, Dealers: Hyundai
vehicle during that ownership period. J.D. Power Consumer Center reported the scores of each model across these three criteria on a four-point scale: 5: among the best; 4: better than most; 3: does not really stand out; and 2: the rest. The case writer first calculated the mean of the three scores for each model and then created an IR score in a given year by averaging those mean scores of all Hyundai models in that year. 14 The yearly CR ratings shown in Exhibit 5 were obtained from the 5-point scale overall scores in Consumer Reports: Buying Guide, which was first published in 1936. The trouble index summarized each models reliability, as reported by Consumer Reports own tests. The case writer calculated the mean of the overall scores of each model, and then created a CR score in a given year by averaging the overall scores of all Hyundai models in that year. 15 Kristine Stiven Breese, Hyundai Boss Outlines Plan for Revival, Automotive News, April 30, 1990. 16 Kristine Stiven Breese, Hyundai Exec Leaves for Infiniti, Automotive News, June 25, 1990.

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will quit U.S. market, reported that many car dealers believed that Hyundai had the worst quality and customers should be prepared to wave goodbye to Hyundai. In 1994, Americans could see TV ads where NBA player Charles Barkley opened the door of the new 1995 Sonata model and said, You got a problem with that? This contributed to a slight sales increase in 1994, but sales decreased again in 1995 (Exhibit 3). In 1995-1996, Hyundai sought to upgrade its quality image by marketing the new Accent and Elantra models, which contributed to the rebound in the 1997 J.D. Power quality ratings (Exhibit 5) and 1996/1997 Consumer Reports quality ratings (Exhibit 6). However, the 1996 sales were off approximately 20 percent from the previous year. The launch of the all-new Elantra did not go well. Then seven high ranking managers walked away from Hyundai in six months. The Koreans still blamed the Americans for the sales fall-off, even though the problem was entirely product-driven. So no American is ever going to have any autonomy, and thats why everyones leaving, said one former staffer on condition of anonymity.17 However, a Korean staffer, who insisted on anonymity, blamed the Americans for an inadequate marketing strategy: They (HMA) never mentioned the increased quality image in the ad campaign of the Elantra launch. Jong-Yun Kim conveyed the Americans voice: I think most executives in HMA agreed that Hyundai needs to disconnect its brand name from the lowest-priced car and mount a long-term image-building campaign. But, due to the short-term sales pressure from HMC, HMA spent all their money on sales incentives rather than on increasing brand image. In 1997, Doug Mazza, the top American executive of HMA, stepped down along with John Dorsey, vice president of sales. Myung-Huhn Juhn from HMC took over Mazzas duties. As Bob Martin, director of competitive strategic planning team in HMA, recalled, We were quite frustrated by the autocratic Korean managers blaming the Americans. They shot down our suggestions for a turnaround. He also quit Hyundai in 1996, but came back in 1998. Worse, the IMF recommendations for dealing with the East Asian financial crisis led Standard & Poors to warn in late 1997 that it might downgrade the credit rating of HMC. In 1998, Hyundais sales tumbled below 100,000 units for the first time since it entered the United States. HMC in Korea was also pushed into the red for the first time in nearly two decades. The Recovery (1999 to 2003) Hyundai was back with a rapid sales hike beginning 1999. Sales of Hyundai-branded vehicles rose about 80 percent, Hyundais dealership shopping rate was the highest since 1993, and more than double that of 1998. These trends in sales continued, with sales reaching 375,119 units in 2002. Exhibit 7 shows the sales distribution of Hyundai cars across models in 2001 and 2002. The Elantra had been the best seller, while the proportion of Santa Fe models sold grew larger every year and the Accents portion decreased. This was closely related to the changing demographics of Hyundai buyers. Hyundai buyers had become older on average 46 in 2003 compared with 42 in 1998. In addition, 75 percent were college educated, compared with 47 percent in 1999, and the 2003 median household income of Hyundai buyers was approximately $52,000, compared with below $40,000 in 1998.

17

Mark Bechtin, Hyundai in Disarray: Sales Fall Off, Staff Desertions Frustration Maker, Automotive News, May 27, 1996.

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Part of the reason for this turnaround seems to be that Hyundai cars quality ratings had steadily increased since the mid-1990s and customers had begun to recognize Hyundai as reliable (Exhibits 5 and 6). In particular, Exhibit 8 shows that the 2002/2003 models of the Sonata and the Santa Fe received high quality scores from the J.D. Power and Associates and the Consumer Reports. The 1999 absorption of Kia and the 2000 deal with Daimler Chrysler, which purchased a 10 percent stake in Hyundai, also helped the company in terms of operation and quality, respectively. The Santa Fe and the XGs were introduced in a bid to shake Hyundais image as a maker of small, cheap cars. The new design center located in Irvine led to producing more appealing cars to American customers and the announcement of the Alabama plant signified that the brand was moving upscale. Most importantly, Bob Martin pointed to the introduction of a series of bold market strategies as the greatest contributor to Hyundais revival: We could not be satisfied by just seeing our quality increase. We had to educate customers. We needed to get the word out. We had to effectively reveal the gap between what actually is and what people believe is. Our challenge changed from quality to reputation. Among other things, he emphasized two strategies of which he was very proud. The Best Warranty In November 1998, right after the promotion of Finbarr ONeill to president and CEO from COO, HMA launched national commercials for what it called the industrys best warranty, which offered 10-year, 100,000-mile powertrain protection to original owners. The U.S. auto industry was perplexed with this crazy tactic, but it really turned things around. Sales soared, dealers became profitable, and Hyundai began to get accolades. A document from HMA reported that 92 percent of the 1999 Hyundai buyers said that the warranty was one of the main reasons they bought Hyundai. Bob Martin said: If your wife slept with other man, how many nights shouldnt she sleep with the guy to recover your trust? One, two, or three nights? Nonsense. Only showing our quality chart to them was not enough to win public confidence. We needed to shock them. Otherwise, we had to wait a long time to have them trust us. Offering the best warranty, not just a better, was the best way to signal that Hyundai has a high level of quality. When we first turned in our warranty plan to HMC, they thought we were insane. Some guys said Hyundai would collapse if we launch the policy. Ironically, the autocratic culture of HMC worked it out. We succeeded in persuading Mong-Koo Chung, so that was that. We learned that sometimes top-down decision-making is more effective than democratic. However, some people in HMC are still very cautious about the good prospects. The impact of the warranty will not be known until 2004 when the 10-year warranty model gets through the 5year ownership (previous warranty period of Hyundai cars), said a HMC employee on condition of anonymity. Scott Park, executive coordinator of strategic/product planning team in HMA refuted this, saying: I understand their concerns. However, we are making up for the possible loss by selling more cars. Moreover, we priced the car and insured the warranty based on

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a very conservative calculation. The extended warranty also pushed HMC to concentrate more on product quality. They fully understand that the issue of the warranty hangs on quality. I heard they are taking steps to strengthen the R&D personnel and working harder with their suppliers to improve the quality and durability. At last, we found an emotional connection between Hyundai and customers. The Packaging Strategy Bob Martin said Hyundai also had to come up with a solution to how to avoid the cheap car image. In late 1998, executives in HMA began to suspect that Hyundai cars would not be able to change their cheap car image as long as their retail prices are lower than competitors. Given the simple rule that a cars price is what its worth, Hyundais low price should be interpreted as low value. Someone asked me, If you believe your car is comparable with other Japanese cars in terms of product quality, why didnt you increase its price? said Scott Park. However, executives in HMA also recognized that one of the main reasons for buying Hyundai cars was the price, and they were afraid of a sales loss, which would probably come from the price increase. HMA faced a dilemma. The solution HMA brought out was to differentiate the standard equipment of its cars from other makers, which was called the packaging strategy or value pricing by people working with HMA. Exhibit 9 illustrates a good example of this strategy. The manufacturers suggested retail price (MSRP) of the 2003 Hyundai Santa Fe was $924 higher than that of its Toyota competitor, the 2003 RAV4. However, many features earmarked as standard in the Santa Fe were optional in the RAV4: manual air conditioning, power windows, power door locks, delayed power retention system, cruise control, CD player, power adjustable exterior mirror, heated exterior mirror, and alloy wheels. In contrast, there were no features that were optional in the Santa Fe but standard in the RAV4. Bob Martin boasted, Now, many people began to think the Santa Fe is just as reliable as the RAV4 due to its price ranges and quality scores. However, the customers who shopped for the SUV and dealers could also recognize that the Santa Fe model has the price advantage over its competing models, as before. So the Santa Fe does not have the cheaper car image any more, but it is indeed sold at a cheaper price. This might sound paradoxical, but we did it very successfully. Ironically, This packaging strategy was learned from Japanese makers earlier experience. They used this strategy when they first competed with Big-3 and German cars, Jong-Yun Kim added. CHALLENGES In spite of its drastic jump, Hyundai was not sure about whether it could retain such momentum. First of all, Hyundais competitors such as Chrysler and Mazda had begun to emulate its 10-year, 100,000 miles warranty and devised a variety of promising marketing strategies. It seemed that the advantage stemming from the warranty would disappear soon. Also, although Hyundais packaging strategy helped it outgrow its cheap car image, this could be regarded as another

Hyundai Motor Company SM-122

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version of price cutting strategy and amount to no more than short-term tactics. Hyundai fully understood that it needed a breakthrough that could lead to a fundamental upgrade of its brand image. Hyundai judged that the key to weathering this challenge was closely related to the restructuring of its lineup and a change in its market position. However, they were afraid to take some strategic actions because there was great uncertainty about the possible effect of each strategic direction. Hyundais challenge came in particular from two situations facing the company. First, Hyundais cars, especially the high quality models such as the Sonata and the Santa Fe, were undervalued compared with their competing models. Exhibit 10 shows the coordinates of quality ratings and resale values for the 2002 Hyundai Elantra and its competitors.18 The Elantra received higher quality scores than the Nissan Sentra, the Dodge Neon, and the Chevrolet, but lower scores than the Honda Civic, the Ford Focus, and the Mazda Protg. The resale value of the Elantra was correspondent to its position in the order of quality ratings, except that the used Nissan Sentra has a higher resale value than the Elantra, although the Elantra received a higher quality rating than the Sentra. However, this exception also holds true when we compare the 2002 Hyundai Santa Fe with its competing models. As shown in Exhibit 11, the Santa Fes quality rating was high compared to the Toyota Highlander and RAV4. The Santa Fe was assigned a higher score than the Mazda Tribute, the Ford Escape, the Jeep Liberty, and the Honda CR-V. However, the 1-year resale value of the Santa Fe was lower than that of the Escape, the Liberty, and the CR-V. Also, the gap in the resale values between the Santa Fe and the Toyota models was much larger than their quality gap. Given that the resale value of a used car is highly correlated with its reputation or the collective perception of that cars quality,19 this might imply that the market perception of the Santa Fes product quality was lower than its actual quality. Suk-Jang Lee said: In the past, we relied heavily on Mitsubishis technology. Now we have outgrown it. However, people in the U.S. still think that Mitsubishi cars are better than Hyundai cars. Heres an interesting story. Some models of our cars and the Mitsubishi are almost physically identical, but the Hyundai brand becomes worth less than the Mitsubishi brand after a few years. This image loss is larger particularly for medium-size cars. We recognize that our entry-level small cars are not outstanding in the quality ratings, but I am proud of our medium-size cars. However, people do not separate medium-size cars from the entry-level cars and they tend to put them together when they judge product quality. The problem is that they infer Santa Fes quality from Accents quality, but not vice versa. The R&D team is complaining about the undervaluation of the Santa Fe and the
18

In Exhibit 9, the X-axis represents the average scores of the Consumer Reports rating and the J.D. Power rating for each model, and the Y-axis represents the 1-year resale value of each model. Based on the Kelley Blue Book: Used Car Guide, the resale value was operationalized as the suggested retail price of 1-year used car divided by its original list price, which is then multiplied by 100. Since the price values for each model varied across equipment schedules as indicated on the equipment charts, the price value for the base model of each model, which assumed minimal equipment, was used. Also, a car model generally produced two or more sub-models with different price values and hence an average score was calculated for each model. 19 M. W. Sullivan, How Brand Name Affects the Demand for Twin Automobiles, Journal of Marketing Research (Vol. 35 1998): 154-165.

Hyundai Motor Company SM-122

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Sonata, but this is a question of product mix rather than a question of marketing skills. I think the variation of quality among the Hyundai models is considerable and this presents a challenge to Hyundais future strategy. The second situation that presented a challenge was that Hyundai cars had relatively low prices. Exhibit 12 shows the price ranges of the 2003 Hyundai cars and its competing models. The maximum and minimum prices of Hyundai cars were almost the lowest in the auto industry.20 Hyundai was one of few automakers that did not offer cars priced over $30,000 in the U.S. market. Jong-Yun Kim said, The fact that Hyundai cannot command a $30,000-plus price in the U.S. may lead to a misinterpretation that Hyundai should wait until its quality deserves more than $30,000. Many people suspect that Hyundai does not have the capability to produce expensive cars. Of course, we have it. Interestingly, according to the scope of automakers engine size (Exhibit 13), which was considered another essential criterion of auto market segmentation,21 Hyundais engine capacity was comparable with Honda and Nissan, but Honda and Nissan commanded higher prices than Hyundai. As I understand, a cars engine capacity should go with the price it can ask for. But Hyundai is an outlier, added Jong-Yun Kim. It seemed, therefore, that the price zone occupied by Hyundai was another hurdle in upgrading its brand reputation. These two difficulties facing Hyundai led many Hyundai executives to suggest that Hyundai needed to shift its focus from entry-level small cars to higher-end medium-size cars. Some people even argued that Hyundai should withdraw its entry-level models from the market in order to shake off its cheap car image. Others considered launching a luxury model. In fact, in 2000, HMC planned to market the Equus luxury model in the U.S., by emulating Lexus, Acura, and Infiniti. We thought if people see Hyundai build a car as reliable as the Japanese luxury, they would be more inclined to buy our intermediate cars such as Sonata and XG. That plan turned out to be premature. But now is the time to think about it again, Jong-Yun Kim said. In addition to overcoming its low-class brand image, Hyundai had three other important reasons for shifting its lineup higher, although some in management seemed to doubt whether these were proper reasons. First, many foreign automakers, in particular the Japanese automakers, had begun to gain a price as well as a quality advantage. Scott Park explained: In the past when the U.S. imposed a high level of import quota constraints, Japanese carmakers such as Toyota focused only on high price cars to make large margins. Then the Big-3 makers were also pushed to increase the prices of their cars. This left a hole in the market and so an opportunity with Hyundai. But as the import quota constraints are relieved, these carmakers have begun to invade our price zone, although some people think this effect would be insignificant. In addition, Hyundai was worried about the entry of Chinese automakers into the U.S. market in the future. I think the Chinese automakers will advance into the U.S. market in 10 or 15 years.
20

In Exhibit 11, the minimum price of each price range is the price of the cheapest model with a standard option. The maximum price is the price of the most expensive model with a full option. 21 S. D. Dobrev, T. Kim, and M. T. Hannan, Dynamics of niche width and resource portioning, American Journal of Sociology (Vol. 106 2001): 1299-1337.

Hyundai Motor Company SM-122

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Then we will see cars even under $8,000, said Suk-Jang Lee. However, he also suspected that since Hyundais technology was superior to the potential Chinese competitors, Hyundais quality would be good enough to compensate for the price disadvantage over the Chinese automakers. Second, Hyundai occupied a very similar market position as its brother carmaker, Kia. As shown in Exhibit 14, Hyundai and Kia occupied almost the same zones in prices and engines. Although they pushed a certain number of cars from the same platform to be profitable, they wanted to be totally separate brands in the market. However, how could they be distinct brands occupying the same market niche? We need to avoid a fratricidal war. One way would be to differentiate Hyundais market position from Kias. For example, Hyundais product mix could move in an upward direction while Kia stays with the entry-level brand, so that Hyundai vehicles are priced above Kia vehicles, commented Jong-Yun Kim. However, he also worried about Kias response to this scenario: Maybe Kia people will be angry. Who wants to be satisfied with the second-rate brand? We need a very cautious approach to this agenda. In any case, we will need to learn how Big-3s and other Japanese automakers cope with this kind of problem. For example, Hyundai could target older consumers based on a stylish brand image while Kia could target younger consumers based on a sporty, active, brand image. Finally, the new plant in Alabama would be a tough hurdle. Suk-Jang Lee said: We may have to give up our price advantage due to the relatively high labor and suppliers costs in the U.S. This is different from the experience of Japanese and European automakers. They moved here to avoid the high production costs in their home countries. But Hyundai is moving here despite high costs because we think building the U.S. plant is a key element for our long-term goal, becoming the worlds fifth largest automaker by the end of this decade. Also, I am sure that the Alabama plant will help us easily adapt to the U.S. trade barriers and provide our products to consumers in a timely manner. So, we need to take the risk of losing our price advantage. This seemed to be one reason why the Alabama plant planned to first launch two higher-level models: the Sonata and the Santa Fe. The company also hinted that the subsequent vehicles, which followed these models, would be at least above intermediate class. Hyundai Mobis, which was Hyundais chief supplier and would also construct a plant near Hyundais site in Alabama, was targeting high-value-added businesses, including electronic steering systems, smart airbags, intelligent brake systems, and satellite radio receivers, rather than cost-saving businesses. However, not everyone agreed that Hyundais Alabama project should move away from the lower end of the market. Hyundai planned a less labor-intensive manufacturing environment, what it called a highly automated production line using as many robots as possible. Hyundai expected to employ only about 2,000 workers at its Alabama plant, which was far below the average number of employees of other U.S. plants after controlling for the scale of production. Thus, some officials insisted that the Alabama project should not deprive Hyundai of its price advantage.

Hyundai Motor Company SM-122

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Organizational Politics The strategic market challenges discussed above were complicated by interorganizational conflicts among the HMC management, the labor union, and HMA. First, Hyundais strategy of moving upward in its car price zone was strongly enforced by lack of cost competitiveness based on cheap labor. A high rank manager in HMC said: 22 I would say that the salary of plant workers in HMC has recorded the highest increase rate within the Korean labor group. Today, their salary is even higher than the CEO of most small or medium-sized companies in Korea. It is imperative to increase our car price for survival. I dont agree that we should be worried about the expected high labor cost of the Alabama plant, because the salary of our plant workers in Korea would not be lower than that of Alabama workers. Rather, the frequent shutdown of plant operations due to strikes pushed us to find plant sites abroad. This means that the more strikes, the more unemployed, though strikes bring them (plant workers) higher wages in the short term. This is a war without a winner. Last week, we granted them the right to veto our critical strategic decisions in order to stop their strike of the last seven weeks. I am concerned that they may try to check the Alabama project. A member of HMC labor union expressed an opposing opinion: I dont understand why the management group blames Hyundais strategic difficulties on the labor union. They should give up relying on cost savings from cheap labor. I am informed that our labor productivity is comparable to the U.S. Big-3 makers. Then we are entitled to request a comparable wage level. However, I am not sure whether our management group, including marketing and financing, has proved comparable capability. If not, the current strategic problems should be attributed to them, not to us. They feel uneasy about our right to veto their managerial decisions. They argue that the labor unions of U.S. automakers are not deeply involved in the managerial decision-making process. But unions in the German automakers do have an important role in the decision process. The HMA was also dissatisfied with the labor groups unreliable production activity. A person from HMA said, U.S. newspapers reports Hyundais strike day after day. It is natural for U.S. customers to perceive that our production system is quite unstable due to the repeated labormanagement disputes. This certainly hurts our brand value. However, another interviewee from HMA pointed out that the current dependent relationship between the HMC management group and HMA was a more critical organizational challenge. He said: Officially, we are supposed to have much control over decisions on market and technological strategies. But we dont have control. We have come up with some good ideas, but we quickly give them up because we know that it will take a long
22

Quotes in this section come from interviews with four Hyundai employees (one from HMC management group, one from HMC labor union, and two from HMA). They all insisted on anonymity.

Hyundai Motor Company SM-122

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time for the ideas to be accepted by the HMC management group. Even when a proposal is accepted, we usually find that the idea is outdated. I understand that HMC people have been accustomed to top-down leadership and they try to control us since they regard us as a subordinate organization. But they should recognize that such a subordinate relationship is a drag on us in pursuit of globalization and time management. We need to learn from the experience of other foreign makers, such as Toyota and Honda, about how to cope with cultural gaps in leadership and decision-making. A CONCLUDING REMARK It seemed clear that Hyundai should decide on a fundamental solution leading to upgrading its brand image. On the one hand, the solution was almost certainly related to shifting Hyundais market position in an upward way. On the other hand, some Hyundai officials were skeptical of the prospect of this move in consideration of its potential negative effects. How could they best resolve these contradictions?

Hyundai Motor Company SM-122

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Exhibit 1 Lineup of Hyundai Models and Competitors in 2003

Hyundai Models Accent
Accent 3-Door, Accent GL 3-Door Accent GL 4-Door Elantra GLS

Competitors Models
Toyoda ECHO 4-door Sedan Chevrolet Cavalier Sedan, 2003 Dodge Neon SE Ford Focus LX Sedan 200A, Honda Civic Sedan DX 5-spd MT Mazda Proteg DX, Nissan Sentra XE, Toyota Corolla CE Chevrolet Cavalier LS Sedan, Dodge Neon SXT Ford Focus ZX5 - 600A, Honda Civic Sedan LX 5-spd MT Mazda Proteg LX, Nissan Sentra GXE, Toyota Corolla S Chevrolet Malibu LS, Dodge Stratus Sedan SE, Toyota Camry LE Ford Taurus LX Standard Sedan - 100A, Nissan Altima 2.5 Honda Accord Sedan DX 5-spd MT, Mitsubishi Galant DE Pontiac Grand Am SE Sedan, Saturn L-Series Sedan L200 Chevrolet Malibu LS, Dodge Stratus Sedan ES, Toyota Camry LE V6 Ford Taurus SES Standard Sedan - 300A, Nissan Altima 2.5 S Honda Accord Sedan LX V-6 5-spd AT, Mitsubishi Galant ES V6 Pontiac Grand Am SE1 Sedan, Saturn L-Series Sedan L200 Chevrolet Malibu LS, Dodge Stratus Sedan ES, Toyota Camry SE V6 Ford Taurus SEL Deluxe Sedan - 400A, 2003 Nissan Altima 2.5 SL Honda Accord Sedan EX V-6 5-spd AT, Mitsubishi Galant LS V6 Pontiac Grand Am SE1 Sedan, Saturn L-Series Sedan L300 Chrysler 300M Sedan, Honda Accord Sedan LX V-6 5-spd AT Nissan Altima 2.5 S, Nissan Maxima SE Toyota Avalon XL, Toyota Camry LE V6 Chrysler 300M Sedan, Honda Accord Sedan EX V-6 5-spd AT Nissan Altima 3.5 SE, Nissan Maxima SE Toyota Avalon XL, Toyota Camry SE V6, Toyota Camry XLE V6 Acura RSX 5-speed MT, Honda Civic Coupe DX 5-spd MT Mitsubishi Eclipse RS, Pontiac Sunfire Coupe, Toyota Celica GT Acura RSX Type-S 6-speed MT w/ Leather, Honda Civic Coupe DX 5-spd MT Mitsubishi Eclipse RS, Pontiac Sunfire Coupe Toyota Celica GT Pontiac Sunfire Coupe Ford Escape XLS 4X2 Value - 100B, Honda CR-V LX 2WD 4-spd AT Jeep Liberty Sport 2WD, Mazda Tribute DX I4, Toyota RAV4 4-Door 4X2 Saturn VUE FWD 4, Toyota Highlander Sport Utility 4X2 Ford Escape XLS 4X2 Sport - 110B, Honda CR-V LX 2WD 4-spd AT Jeep Liberty Limited 2WD, Mazda Tribute LX V6, Saturn VUE FWD V6 Toyota Highlander Sport Utility V6 4X2, Toyota RAV4 4-Door 4X2 Ford Escape XLS 4X4 Popular - 220B, Honda CR-V LX 4WD 5-spd MT Jeep Liberty Sport 4WD, Mazda Tribute LX V6 4WD, Saturn VUE AWD V6 Toyota Highlander Sport Utility V6 4X4, Toyota RAV4 4-Door 4X4 Ford Escape XLT 4X4 Popular 2 - 400B, Honda CR-V EX 4WD 5-spd MT Jeep Liberty Limited 4WD, Mazda Tribute ES V6 4WD, Saturn VUE AWD V6 Toyota Highlander Limited V6 4X4, Toyota RAV4 4-Door 4X4

Elantra
Elantra GT 5-Door

Sonata Sedan

Sonata

Sonata GLS

Sonata LX

XG 350 Sedan

XG 350
XG 350 L

Tiburon Base

Tiburon
Tiburon GT V6

Santa Fe Base

Santa Fe GLS 2.7L

Santa Fe
Santa Fe GLS 2.7L 4WD

Santa Fe LX 4WD

Source: Hyundai Motor Company

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p. 18

Exhibit 2 Organization Chart of HMC

C hairm an&C .E.O President &C .E.O

Planning& C oordination D ivision Planning& C oordination D epartm ent Planning Supervising Part

Inform ation Technology D ivision Inform ation Technology C enter C hinese Business D ivision Product Planning D ivision M arketing M anagem ent D ivision Q uality M anagem ent D ivision Purchase M anagem ent D ivision R esearch& D evelopm ent D ivision

A fter Service D ivision

A uditingPart

Product Planning D epartm ent

Purchase M anagem ent D epartm ent

A fter Service D epartm ents

Foreign M arketing D epartm ent D om estic M arketing D epartm ent

Q uality M anagem ent D epartm ent

Purchase M anagem ent Part Purchasing Parts1~3

Linear D evelopm ent C enter R & DPlanning Part R & DSupporting Part Pilot C enter Electronic D evelopm ent C enter Product D evelopm ent C enter D esignC enter Test C enter Pow er Train R esearchC enter Sohari R esearchC enter

Source: Hyundai Motor Company

Hyundai Motor Company SM-122

p. 19

President &C .E.O

M anagem ent Supporting D ivision

Financial M anagem ent D ivision Financial M anagem ent D epartm ent

Foreign Business D ivision

D om estic Business D ivision Business Supporting D epartm ent

W oolsan Plant

Production& D evelopm ent D ivision Production& D evelopm ent D epartm ent

C om m ercial V ehicle D ivision

Supporting Part W oolsan Sub-plants

C orporatePlanning& Public A dm inistration R elationsPart Part

T ransm ission Plant A utoParts Plant Sheet Plant

Production A ppliance Part

A san Plant

Production T echnology C enter T ooling C enter

Sales Part Junjoo Plant C om m ercial V ehicle R & DC enter

Hyundai Motor Company SM-122

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Exhibit 3 Sales of Hyundai Cars 1986-2002

400,000 3.00%

350,000 2.50% 300,000 2.00% 250,000 m a rke t s h a re

S a les

200,000

1.50%

150,000 1.00% 100,000 0.50% 50,000

0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Year total sales of Hyundai market share

0.00%

Compiled from: Automotive News, 1986-2002.

Hyundai Motor Company SM-122

p. 21

Exhibit 4 Corporate Logos of Hyundai and Honda

( ~ 1992)

(1993 ~ )

Source: Hyundai Motor Company

Hyundai Motor Company SM-122

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Exhibit 5 J.D. Power Quality Ratings of Hyundai Cars 1990-2003

3.5

J.D Pow er Quality Ratings

2.5

1.5

1 1990 1991 1992 1993 1994 1995 1996 Year 1997 1998 1999 2000 2001 2002 2003

Compiled from: J.D. Power Consumer Center, 2003.

Hyundai Motor Company SM-122

p. 23

Exhibit 6 Consumer Reports Quality Ratings of Hyundai Cars 1990-2003

4.5

3.5

CR rating

2.5

1.5

0.5

0 1990 1991 1992 1993 1994 1995 1996 Year 1997 1998 1999 2000 2001 2002 2003

Compiled from: Consumer Reports: Buying Guide, 1990-2003.

Hyundai Motor Company SM-122

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Exhibit 7 Sales Distribution of Hyundai Models 2001/2002

Santa Fe, 56,017 (16%) Accent/Excel, 79,480 (23%)

XG350, 17,884 (5%)

Tiburon, 19,176 (6%)

Sonata, 62,385 (18%) Elantra, 111,293 (32%)

2001

Santa Fe, 78,279 (21%)

Accent/Excel, 71,488 (19%)

XG350, 16,666 (4%)

Tiburon, 19,963 (5%)

Elantra, 120,638 (33%)

Sonata, 68,085 (18%)

2002

Compiled from: Automotive News, 2002-2003.

Hyundai Motor Company SM-122

p. 25

Exhibit 8 Quality Ratings of Hyundai Models 2002/2003

4.50

4.00 Average of CR Ratings and J.D Power Initial Quality Ratings

3.50

3.00

2.50 2002 2003 2.00

1.50

1.00

0.50

0.00 Accent Elantra Tiburon Models Sonata XG350 Santa Fe

Compiled from: J.D. Power Consumer Center, 2003. J.D. Power & Associates; Consumer Reports: Buying Guide, 2002-2003.

Hyundai Motor Company SM-122

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Exhibit 9 Comparison of Hyundai and Toyota SUVs

2003 Hyundai Santa Fe Base
Price MSRP Destination Charge Interior Manual Air Conditioning Automatic Climate Control Rear HVAC Ducts Interior Pollen/Particle/Dust Air Filter Power Windows Power Door Locks Front Bucket Seat Driver Multi-Adjustable Power Seat Second Row Folding Seat Second Row Split Bench Seat Rear Passenger Easy Entry Seat Leather Seat Reading or Map Light Delayed Courtesy Light Illuminated Vanity Mirror Delayed Power Retention System Front Power Outlet Tilt Steering Column Cruise Control Tachometer Trip Computer Door Mounted Storage Lower Console Storage Seatback Storage Cupholders Remote Decklid or Tailgate Release Traction Control CD Changer Power Sunroof/Moonroof Entertainment, Communication & Navigation Equipment AM/FM Radio CD Player Cassette Player Power Radio Antenna Exterior Power Adjustable Exterior Mirror Heated Exterior Mirrors Interval Wipers Tinted Glass Automatic Headlights Rear Window Defogger Alloy Wheels Tire Detail Underbody Tire Carrier Metallic Paint Safety Driver Airbag Passenger Airbag Side Airbags Passenger Air Bag Cutoff Automatic Locking Retractor Seat Belt Height Adjuster Child Safety Door Locks Trunk Anti-Trap Device Side Guard Door Beams Vehicle Anti-Theft Keyless Entry (Remote Lock/Unlock) $17,549 $590 Standard Not Available Standard Not Available Standard Standard Standard Not Available Standard Standard Not Available Not Available Standard Standard Not Available Standard Standard Standard Standard Standard Not Available Standard Standard Standard Standard Not Available Not Available Not Available Not Available Standard Standard Not Available Not Available Standard Standard Standard Standard Not Available Standard Standard

2003 Toyota RAV4 4-Door 4X2

$16,625 $510 Optional Not Available Standard Standard Optional Optional Standard Not Available Standard Standard Not Available Optional Standard Standard Not Available Optional Standard Standard Optional Standard Not Available Standard Standard Standard Standard Not Available Not Available Optional Optional Standard Optional Standard Not Available Optional Optional Standard Standard Not Available Standard Optional SBRP215/70R16, All-Season Mud and Snow Tires Not Available Standard Standard Standard Not Available Not Available Standard Standard Standard Not Available Standard Optional Optional

SBRP225/70R16, All-Season Tires Standard Standard Standard Standard Standard Not Available Standard Standard Standard Not Available Standard Optional Optional

Hyundai Motor Company SM-122

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Performance Manual Transmission Automatic Transmission RPM at Peak Horsepower RPM at Peak Torque Displacement CC Bore X Stroke Compression Ratio 4 Cylinder Engine 6 Cylinder Engine 8 Cylinder Engine 10 Cylinder Engine 12 Cylinder Engine Fuel Type 4 Wheel ABS Brakes Brakes (Front) Brakes (Rear) Front Suspension Rear Suspension Stabilizer Bar 4 Wheel Drive Transfer Case Driveline Power Steering Steering Diameter (Left) Steering Diameter (Right) Extended Service Interval EPA Mileage Estimate Fuel Economy City Fuel Economy Highway Combined Fuel Economy Warranty Basic Months Basic Miles Powertrain Months Powertrain Miles Corrosion Perforation Months Corrosion Perforation Miles Dimensions, Weights, Capacities Doors (Standard) Doors (Maximum) Standard Seating Maximum Seating Optional Seating Tires Wheelbase Ground Clearance Curb Weight Automatic (lbs) Curb Weight Manual (lbs) Standard Payload (lbs) Maximum Payload (lbs) Standard GVWR (lbs) Maximum GVWR (lbs) Track Width Front (in.) Track Width Rear (in.) Fuel Capacity Front Headroom (in.) Second Row Headroom (in.) Front Legroom (in.) Second Row Legroom (in.) Front Shoulder Room (in.) Second Row Shoulder Room (in.) Front Hiproom (in.) Second Row Hiproom (in.) Length (in.) Width (in.) Height (in.)

Standard Optional 138@5500 147@3000 2351 3.41 X 3.94 10 Standard Not Available Not Available Not Available Not Available Unleaded Optional Disc Disc Independent Independent Standard Not Available Not Available Front Wheel Drive Standard 37.1 37.1 Not Available 20 27 23 60 60000 120 100000 60 100000 4 4 5 5 Not Applicable 225/70R16 103.1 7.4 3574 3494 1376 1376 4870 4950 60.7 60.7 17.2 39.6 39.2 41.6 36.8 56.3 56.5 54.4 54 177.2 72.7 66

Standard Optional 148@6000 142@4000 1998 3.39 X 3.39 9.8 Standard Not Available Not Available Not Available Not Available Unleaded Optional Disc Drum Independent Independent Standard Not Available Not Available Front Wheel Drive Standard 35.4 35.4 Standard 25 31 27 36 36000 60 60000 60 UNLIMITED 4 4 5 5 Not Applicable 215/70R&16 98 6.3 2777 2711 1235 1235 3946 3946 59.3 59.1 14.7 41.3 38.3 42.4 32.6 54.1 53.7 53.4 46.5 166.2 68.3 65.7

Source: Hyundai Motor Company

Hyundai Motor Company SM-122

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Exhibit 10 Quality Ratings and Resale Values of 2002 Hyundai Elantra and Competitors
90.00%

85.00%

Honda Civic

Nissan Sentra 80.00% Resale Value

Ford Focus 75.00% Mazda Protege

Hyundai Elantra
Dodge Neon 70.00% Chevrolet Cavalier

65.00% 2.00

2.50

3.00

3.50

4.00

4.50

5.00

Average of CR Ratings and J.D Power Initial Quality Ratings

Compiled from: J.D. Power Consumer Center, 2003. J.D. Power & Associates; Consumer Reports: Buying Guide, 2002-2003; and Kelley Blue Book: Used Car Guide, 2003.

Hyundai Motor Company SM-122

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Exhibit 11 Quality Ratings and Resale Values of the 2002 Santa Fe and Competitors

96.00% Toyota RAV4 94.00%

92.00%

90.00% Toyota Highlander Resale Value 88.00% Jeep Liberty 86.00% Ford Escape Honda CR-V

Hyundai Santa Fe
84.00%

82.00%

80.00%

Mazda Tribute

78.00% 2.00

2.50

3.00

3.50

4.00

4.50

5.00

Average of CR Ratins and J.D Power Initial Quality Ratings

Compiled from: J.D. Power Consumer Center, 2003: J.D. Power & Associates; Consumer Reports: Buying Guide, 2002-2003; and Kelley Blue Book: Used Car Guide, 2003.

Hyundai Motor Company SM-122

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Exhibit 12 Price Ranges of 2003 Hyundais and Competitors

Hyundai Acura Chevrolet Chrysler Dodge Ford Automakers Honda Jeep Mazda Mitsubishi Nissan Pontiac Saturn Toyota 0 10,000 20,000 30,000 40,000 50,000 Price Range 60,000 70,000 80,000 90,000 100,000

Compiled from: Kelley Blue Book: New Car Guide, 2003.

Hyundai Motor Company SM-122

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Exhibit 13 Engine Scopes of 2003 Hyundais and Competitors

Hyundai Acura Chevrolet Chrysler Dodge Ford Automakers Honda Jeep Mazda Mitsubishi Nissan Pontiac Saturn Toyota 1.0 2.0 3.0 4.0 5.0 Engine Scope 6.0 7.0 8.0 9.0

Complied from: Kelley Blue Book: New Car Guide, 2003.

Hyundai Motor Company SM-122

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Exhibit 14 Price Ranges and Engine Scopes of 2003 Hyundais and Kias

Hyundai

Automakers

Kia

10,000

20,000

30,000

40,000

50,000 Price Range

60,000

70,000

80,000

90,000

100,000

Hyundai

Automakers

Kia

1.0

2.0

3.0

4.0

5.0 Engine Scope

6.0

7.0

8.0

9.0

Compiled from: Kelley Blue Book: New Car Guide, 2003.