Hyundai and Kia Motors

The Early Years and Product Development

By Donald G Southerton

Also by the Author

Non-fiction
The Filleys: 350 Years of American Entrepreneurial Spirit
Intrepid Americans: Bold Koreans Early Korean Trade, Concessions, and
Entrepreneurship
The Sioux in South Dakota (Contributing author)
Chemulpo to Songdo IBD: Korea s International Gateway
Fiction
A Yankee in the Land of the Morning Calm: A Historical Novel
Book One, 1890-1895
A Yankee in the Land of the Morning Calm: Gold and Rail
Book Two, 1895-1900
A Yankee in the Land of the Morning Calm: The Northern Frontier
Book Three, 1900-1907
eBooks
Coffee, Cars, and Corporations: Thoughts on Korean Business and Popular
Culture
More Thoughts on Korean Business and Popular Culture: Volume 2

Copyright 2012
By
Donald G. Southerton
All rights reserved.

10 9 8 7 6

Library of Congress Cataloging-in-Publication Data

Southerton, Donald G. 1953ISBN 978-1477694381

Contents
Acknowledgements
Foreword
Chapter 1
The Pony
Chapter 2
The Excel
Chapter 3
Brisa to the Pride
Chapter 4
The Pride, Sephia, and Sportage
Chapter 5
The IMF and Rebirth
Chapter 6
The Road to Recovery
Endnotes
About the Author

Acknowledgements
This book s content is built upon considerable historical and contemporary
research. In crafting this work, I have benefited enormously from many. My first
thanks must go to the Hyundai and Kia Motors organization for sharing their
culture and accomplishments.
I also owe a special thanks to Mark Juhn, 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
friends; I would like 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 future. 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
http://www.facebook.com/TheHyundaiWay

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 1967, 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 turn, would transfer technology and explicit
knowledge, such as blueprints, technical specifications, 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. Hyundai also recruited talent with experience in
production from 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 world.
Initial car production at the plant focused on 2 models first the Ford Cortina Mark
II and soon after the Ford Granada Mark II. Production targeted the South Korean
domestic market with some limited export and production numbers grew from 614
cars in 1968 to 7,009 in 1973.
The Pony
Meanwhile by 1973, the Korean state-run Economic Planning Board (EPB)
formulated The Long-Term Plan for Promotion of the Automobile Industry. In a
policy-shift from CKD partnerships, the government mandated Korea s four
leading automobile companies Hyundai, Daewoo, Kia, and SsangYong to
submit detailed plans to develop a Korean car by 1975.
Following similar tactics imposed across business sectors to build an importsubstitution economy, the Korean government coerced automakers to embrace

the new mandate or face restrictions in their current operations. Hyundai, a strong
adherent of the state-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 firms in five countries to acquire
required technologies:
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 firms 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 Turnbull as their new vice president. Turnbull,
in turn, hired five other top British car engineers: Kenneth Barnett for body design,
engineers John Simpson and Edward Chapman, John Crosthwaite as chassis
engineer and Peter Slater as chief development engineer.
Turnbull s exit from his position at British Leyland followed in the wake of the
merger/restructuring of BMH and Leyland Motors. As a parting gift, he was,
however, allowed any car from the lineup. He left with two Morris Marinas, a
sedan and a coupe cars Turnbull 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
from the West with noted craftsman Giorgetto Giugiaro and the ItalDesign studio.
Founded in 1968 by Giugiaro and Aldo Mantovani as Studi Italiani Realizzazione
Prototipi S.p.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 1400cc sizes. ITAL designed three and five-door
(hatchback) body styles to fit 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 officially 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 selling 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 II, by the mid-80s Hyundai
was ready to introduce a new front wheel drive X-1 model. 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.i 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 little
recognition 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 Africa, 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
Rai 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)

In a broader context, this international effort was part of the Korean government s
push for a strong export-driven economy. The X-1 would play an important role in
furthering this plan. To produce the new Excel, Hyundai invested an estimated
$500 million 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 survive 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
across 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
168,882 cars. Moreover, Hyundai Motor Company Korea s cumulative production
topped one million vehicles.

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, quality issues soon
surfaced. Common complaints were that the body panels were wavy, the paint
faded and window cranks were often faulty. 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 living up to expectations. That said, the attacks on the Excel never
approached those against the Yugo or even American models, for example the
Ford Edsel of the 1950s. In reality total sales by the end of the second year were
considerable at 263,610 vehicles in a down U.S. car market.
Lessons Learned
Despite a decline in sales and tarnished image, rather than dropping out of the
world's largest automotive market Hyundai would learn from the Excel. By the late
1990s and early 2000s and with leadership changes at Hyundai Motor Company,
the OEM would invest heavily in the long-term R&D, design, manufacturing, and
quality of their 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 suffer 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 full line of
fuel-efficient vehicles that have earned critical acclaim and dramatically increased
consumer awareness. Interestingly, the carmaker had early roots as a Korean
bicycle and motorcycle manufacturer.
In the early 1960s, the Kia Motors Company moved beyond bicycles and
motorcycles to produce a highly practical K360 three-wheel utility 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
trucks eventually licensed from Mazda.
During this era of budding Korean economic development, strong technology ties
with foreign partners were common. For example, other Korean firms 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 build a self-sufficient 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 1973, 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.ii

Brisa Pickup
In conjunction with manufacturing the Brisa pickup, Kia Motors also began
production of 1-liter gas engines. While the competition sourced engines from
their foreign partners, this marked the first Korean company to manufacture its
own engines. In the first year of production, 65 percent of the parts in the Brisa,
including the engine, drive shaft and clutch, were manufactured in Korea. This
local sourcing was strongly encouraged by the Korean Government and the ratio
of locally produced parts increased steadily over the years.
In the fall of 1974, the first Kia Brisa S-1000 four-door sedans rolled off the Sohari
production line. Overall the Brisa was a success with 75,987 sold between 1974
and 1981. In 1975 the Brisa pick-up also became the first Kia to be exported when
a number were shipped to Qatar in the Middle East.

Brisa Sedan, Sohai Plant

Oil Shock
Notably, what spurred the Brisa s early success was actually its small 1000cc
engine displacement. Starting in 1973, an international oil shortage forced
gasoline prices to skyrocket along with creating a supply shortage in Korea.
Veteran Hyundai and Kia Motors executive Mark Juhn who began his career with
Shinjin Motors noted that the oil shock had a devastating impact on Kia s rival
newly formed and much larger General Motors Korea, a joint-venture company

between GM and Shinjin Motors. Juhn shared that with high gas prices Korean
consumers favored the Kia Brisa and its smaller more economical engine over
GM Korea s first production model, the Chevrolet 1700 with a larger 1700cc
engine. Juhn points out, I could say the oil shock brought good luck to Kia but
GM Korea struggled.
Steady Growth
By 1976 Kia also strengthened its position in the commercial vehicle sector by
purchasing Asia Motors based in Kwangju, South Korea. Asia Motors
manufactured heavy trucks, buses, and a line of military vehicles. In addition, to
meet growing demand in Korea for cars, Kia even started CKD assembly of the
Fiat 132 sedan, along with the Peugeot 604, a larger model sedan.
Government Intervention
Despite Kia s successes, government intervention imposed new mandates over
much of the growing Korean economy. Direct competition was regulated across
many sectors of industry. In 1981, Kia Motors was told to stop producing cars and
concentrate instead on light commercial vehicles. In turn, more light truck and van
models were added, including the 1-ton Bongo, the Ceres pick-up and some
larger truck models.
Ford Alliance
By the mid-1980s the Korean Government decided to change policy and relax its
restrictions on the car and truck companies. Kia was allowed to return to car
production. Working with the Mazda s Ford alliance, Kia Motors began to produce
the Festiva (known as the Pride in Korea). Export to the U.S. began in 1988. The
venture was extremely successful with 300,000 Festivas being shipped overseas
between 1988 and 1993.

Chapter 4 The Pride, Sephia, and

Sportage
Political and economic forces had long impacted the growth of the South Korean
carmakers, including Hyundai, Daewoo, SsangYong, and Kia Motors. Despite the
country s economic success in the 1960s and 1970s, the growth model South
Korea pursued was not immune to new challenges that would hit the country. In
particular, two events would have significant impact on the country s economy: the
1987 democratic transition and the Asian financial crisis of 1997-98.
Kia Motors, which had grown into Korea s second largest carmaker, would soon
experience both international success and its own demise the latter leading to a
second chance under parent company Hyundai Motor.
New Strategy
By the mid 1980s, Kia's strategy looked overseas. They planned to fill the void at
the low-cost end of the automotive market which was slowly being abdicated by
the Japanese brands pursuing sales of more expensive models with higher profit
margins. Compared to rival automakers in Japan, and also Europe and North
America, Kia's competitive advantage was its lower-paid South Korean
workforce which translated into lower-priced cars.
The Festiva
Meanwhile and well-timed for Kia, Ford Motor Company requested its Japanese
partner Mazda to design a car for the US market the Ford Festiva.iii In turn Ford
contracted Kia to begin production of the Festiva under license for overseas
distribution. In Korea the car was badged as the Kia Pride, with local sales
beginning in 1986. Starting in mid-1987, Kia began exporting the Ford Festiva to
Canada, with a US launch later that year. This plan aligned well with Kia strategy.
Over the life of the Festiva in the United States, Kia would export roughly 350,000
units.

1986 Ford Festiva (Kia Pride)

Second Generation
By the early 1990s, a second model based on the Ford Festiva was developed
jointly between Kia and Ford. This model retained most of the drivetrain of the
previous model with a more rounded body style. This second generation model
was slightly longer, wider, more aerodynamic, and suspended by MacPherson
struts in the front and a torsion bar axle in the rear. Production of this model was
in parallel to the first generation Festiva. The new model was introduced in 1993
as the Ford Aspire in North America and Kia Avella in South Korea and other
markets.
Sephia
Along with many Korean companies Kia Motors began to suffer during the late
1980s and early 1990s from labor problems. Dismayed with low pay and poor
working conditions, South Korea's workers rebelled during this period. Union
strikes forced many companies to significantly raise wages. The labor uprising
was actually just one part of a much larger movement begun in the 1980s to
dismantle South Korea's authoritarian political and economic framework.
Seeing growth as a solution to not only rising labor costs but also strong
competition from rival Hyundai and Daewoo, in 1992 Kia developed the Sephia, a
compact four-door sedan. The first generation Sephia was loosely based on the
Mazda Familia (BG). The car quickly became the best selling automobile in South
Korea.

1992 Kia Sephia

Meanwhile Kia invested heavily in the early 1990s to expand their production
capacity. This expansion included a steel plant and a second manufacturing
facility in Hwasong.
During this timeframe, plans also called for establishing a US subsidiary Kia
Motors America. In part, Kia was confident in its ability to enter the US market
since the company was already selling cars in about 80 foreign countries and
building a total of more than 500,000 cars annually. Moreover, for the US market,
Kia bet heavily on its ability to market the Sephia and another new model, the
Sportage (launched in 1993 in Korea). The big draw for Kia products was their low
price compared to other cars with similar performance and quality. Over the next
few years overseas sales would improve steadily. That said, by early 1997, the
Asian Financial Crisis, called the IMF Crisis in South Korea, would rip through the
region. Kia s debt load would make the automaker extremely vulnerable.

Chapter 5 The IMF and Rebirth

Few events in recent history have impacted South Koreans as significantly as the
1997-98 Asian financial crisis, commonly called the IMF Crisis. Thousands of
Koreans lost their jobs and lifesavings as the crisis rocked the foundations of most
Korean industrial groups or chaebol. In fact, no fewer than five major chaebol
failed early in the crisis amid others who had to petition for bankruptcy. In the end,
as many as 18 of the largest 30 chaebol would risk bankruptcy, and no more than
a handful of the top 30 groups were seen as financially sound.
For Kia Motors the IMF Crisis would be devastating. Although overseas sales and
growth were steady, by early 1997 with ever-increasing development and labor
costs, Kia found themselves heavily in debt.
Perhaps of equal concern, Kia's difficulties were also a signal of problems
throughout the South Korean automobile industry. The big three Korean
automakers Hyundai, Kia and the Daewoo Motor Company had created more
capacity than needed for the once rapidly growing Korean domestic market.
Adding to the pressure were plans by the Samsung Group to enter the car market,
building a state of the art plant with the assistance of Nissan.
When the IMF Crisis ripped through the region, Kia s debt load made the
automaker extremely vulnerable. Strapped for cash, Kia looked to the government
for an emergency loan. Meanwhile, an increasing number of Korean companies
began to suffer similar financial challenges and they, too, sought government
assistance.
In reaction to the crisis, international credit agencies downgraded the ratings of
Korean banks. This led to a tightening of credit, which made it nearly impossible
for debt-laden companies, Kia included, to borrow additional funds. As the
economic situation grew worse across South Korea, domestic car sales
plummeted, further impacting Kia s dwindling revenue and cash flow.
By October 1997 it was clear that additional funding for the beleaguered Kia would
not be forthcoming from private banks. With few options, the government took
over the company and placed Kia in a receivership in order to stave off
bankruptcy and job losses.
Looking deeper
A number of other factors also contributed to the collapse of Kia Motors. Some
were beyond the control of its management. Others included the practice of Kia

Motors and most Korean chaebol of seeking market share regardless of the
impact on financial markers, such as high debt-equity ratios and cross loan
guarantees to affiliates. To gain a better understanding we need to look deeper.
First, the company s profitability suffered prior to the IMF Crisis. In particular,
excessive domestic market competition was triggered by Daewoo s interest-free
sales campaigns from the early 1990s. Kia also carried a growing burden of debt
as a result of over-expansion of production capacity in its domestic and overseas
plants. Moreover, Kia made huge investments to develop and then ramp-up
production of their own passenger car models, the Sephia and Sportage.
Next, following the model of Korea s most successful industrial groups, such as
Hyundai, Daewoo and Samsung, the company sought to diversify their core
business by acquiring a steel-manufacturing firm (renamed Kia Special Steel),
establish a constructing company (named the Kisan), and form a trading company
(named Kia Inter-trade). Most of these new affiliates operated at huge losses and
contributed significantly to the mother company s financial crisis.
In addition, and rarely discussed, was the adversarial and costly takeover attempt
by the Samsung Group. Kia management barely defended themselves against
Samsung s M&A attempts. More damaging, Kia s vulnerability was widely
exposed to the finance community during the takeover attempt, causing a sharp
drop in their stock market value between 1996 and 1997.
Finally, as a smaller professionally managed and not family-run company, Kia was
viewed more harshly by the Korean banks than larger, more diversified and
politically connected Hyundai, Samsung and Daewoo. In fact, unlike Kia, the
larger chaebol were seen as too big to fail and so critical to the Korean economy
that the government would take extreme measures to support and bolster them
financially.
Re-birth
Once in receivership Kia Motors was soon joined by a growing number of Korean
companies. The government was not in a position to manage the growing list of
failed firms and, therefore, sought a buyer for Kia Motors. A few foreign investors,
including GM and Ford, considered bidding for the company. When terms set by
the creditors were seen as unfavorable, both GM and Ford stepped aside, leaving
Hyundai, Daewoo, and Samsung still highly engaged in a bidding war.
Posturing itself well, Hyundai eventually won the bid and purchased a controlling
interest in its former rival Kia Motors. Fortunately, for Kia Motors the Hyundai
Group acquisition was an opportunity for a new start.

Chapter 6 The Road to Recovery

The 1997-98 IMF Crisis forced dramatic restructuring across South Korea s car
industry. Daewoo Motors, once a market leader, fell with the demise of the mother
group and GM acquired their Korean manufacturing facilities. Samsung s budding
car division was sold to Renault, while SsangYong Motors entered into a
protracted receivership. In contrast, Kia Motors was given a new start the
merger with Hyundai Motor Company set the stage for both brands to leap
forward.
New Management
For Hyundai and Kia Motors, new management came at a time of considerable
restructuring of the company and was led by Chung Mong Koo, the son of the
Hyundai Group founder. Initially, the restructuring was a combination of fiscal cuts
across the company along with consolidation of duplicate services, such as R&D
and parts manufacturing, between the two brands. A new marketing plan for the
brands was also launched with Kia focusing on the younger and stylish consumer
and Hyundai targeting an older, more mature customer.
Following his family s hands-on management style, Chung Mong Koo personally
not only oversaw the merging of Kia's operations with Hyundai Motor but also
encouraged employees and inspected quality as he toured production lines.
Earlier in his career, Chung Mong Koo had managed a number of Hyundai Group
companies, including the automotive after-sale service division. From his
experience working with consumers, Chung Mong Koo knew the damage to the
Hyundai reputation because of shoddy products, not to mention the high cost of
warranty repairs. Quality was set as a top priority and the management team
formulated a strategy that benchmarked the world s best car brands, mandated
higher production standards, and declared that poor workmanship was not
acceptable.
Hyundai s Bold Move
Amid the rapid changes at Hyundai and Kia in Korea, their overseas operations
saw challenges. As noted earlier in this series, Hyundai s overseas reputation
suffered from quality issues in the years following the launch of the Excel. Over
time, sales dropped significantly.

By 1998 the situation in the U.S. worsened. This was due in part to the fallout of
the IMF Crisis in Korea rippling into Hyundai s overseas operations and also to the
discontent among Hyundai customers and dealers over quality issues. In a bold
move at a historic dealer conference, Hyundai Motor America announced
America's Best Warranty a 10 year, 100,000 mile coverage of the brand.
Industry experts have long suggested the warranty marked the turnaround of
Hyundai in the U.S. market. Mark Juhn, Hyundai Motor America s CEO at the
time of the announcement notes, When Hyundai announced the 10 years 100,00
miles warranty in October, 1998, it was like burning its boat, no way out. If the
crew could not put out the fire, they [Hyundai] would burn and die. Juhn further
explained that the warranty compelled the OEM to improve quality or the company
would suffer huge financial consequences covering the warranty repairs.
Santa Fe
Concurrent with the restructuring, Hyundai began production of its first SUV.
Introduced for the 2001 model year, the Santa Fe became a milestone for the
company, not only since it was developed during restructuring, but also because
the SUV was a huge hit with the American buyer. Marking a trend we see today,
the Santa Fe was so popular that Hyundai dealers had trouble at times meeting
demand. For Hyundai Motor America, the Santa Fe was a needed addition to the
brand s U.S. subsidiary with just four models in its line up (the Accent, the Elantra,
the Tiburon, and the Sonata).

2001 Hyundai Santa Fe

Kia Motors
So, how did Kia Motors fare? Removing itself from court receivership just 22
months after it nearly went bankrupt, Kia was in full recovery and showing a profit
by 2000. In part, this was due to synergy of the merger and ''tough restructuring,''
as noted by Uhm Sung-yong, a former Kia Motors vice-president. Providing some
sense of the task that included slashing the workforce and corporate size, Uhn

remarked, "Everyone had to go through restructuring during the IMF crisis. But
ours was the toughest .
That said, sales domestically and abroad drove much of the recovery thanks to
the popularity in Korea of the Carnival, Carstar, and Carens minivans, and in the
overseas markets, the U.S. included, to the Sephia and Sportage.
Expectations
Internally Chung Mong Koo replaced Kia s old leadership with handpicked and
trusted Hyundai management. Expectations were for these teams to make Kia
profitable and efficient as soon as possible. For example, after his tenure as
Hyundai Motor America CEO Mark Juhn returned to HMC HQ in Seoul. By late
2000 he was transferred to Kia Motors as COO for their Export Division. Meeting
the challenge, Juhn first addressed operational issues. In particular, the existing
process for ordering and supplying distributers with vehicles was labor intensive
with unpredictable lead times and huge back orders. Seeking an innovative
solution, Juhn and his team developed a streamlined production order processing
system, the KDCS (Kia Distributor Communication System). The new system
provided a dependable method for distributors to track their orders and reduce
errors.
COO Juhn s next mission was building the brand image and enhancing global
awareness. While pondering how to improve Kia s brand recognition Juhn came
upon the idea to contact the promoters of the Australian Open Tennis
Tournament, one of world s top tennis events. The Open was looking sponsors so
with Chairman Chung Mong Koo s approval Kia became a major sponsor of the
Grand Slam tennis tournament.
The event was a big hit in Australia and for Kia s distributors and dealers
worldwide. As Juhn had hoped, associating the brand with such a high profile
event boosted brand recognition along with company-wide pride among teams
and management.
Rio
Similar to Hyundai, Kia s restructuring marked the introduction of new car models.
Launched in 2000, the sub-compact Rio replaced the Pride. This new model was
developed independently by Kia and ended Kia s reliance on long time partners
Mazda and Ford.
When released in America, the Rio was one of the lowest-priced vehicles
available. The Rio also was a welcome addition to Kia Motors U.S. lineup that
included the Sephia, Sportage SUV, Sportage 2-Door Convertible, and the new
Spectra hatchback.

2000 Kia Rio

Conclusion
To conclude, from the 1960s to early 2000s, political and economic forces
impacted the growth and development of the South Korean carmakers, including
Hyundai and Kia Motors. In addition, the brands at times partnered for technology
and design with Ford, Mazda, and Mitsubishi, along with expanding rapidly in
Korea and into new international markets.
Despite the failure of Kia Motors to survive the IMF Crisis, the merger with
Hyundai led to integrated technology research, development, and
manufacturing not to mention the economies of scale needed for the Korean
automaker to compete globally with industry heavyweights such as Toyota, Ford,
GM, and VW.

About the Author

Don Southerton has held a life-long interest in Korea and the rich culture of the
country. He has authored numerous publications on culture, new urbanism,
entrepreneurialism, and early U.S.-Korean business ventures. Southerton also
extensively writes and comments on modern Korean business culture and its
impact on global organizations. His firm, Bridging Culture Worldwide, provides
consulting, strategy, and training to Korea-based global business.

Endnotes
i

The hatchback model version of the X-1 was also sold in the Mitsubishi Motors in the U.S. from
1987 to 1994 as the Mitsubishi Pr cis.
ii
Interestingly, Mazda s first production Familia was styled by a young Giorgetto Giugiaro who
would go on to design rival Hyundai Motor s Pony.
iii
Starting in 1979 with a 7-percent financial stake, Ford began a partnership with Mazda resulting
in various joint projects. During the 1980s, Ford gained another 20-percent financial stake. Further
financial difficulties at Mazda during the 1990s (partly caused by losses related to the 1997 Asian
financial crisis) caused Ford to increase its stake to a 33.4-percent controlling interest in May
1996.