The Hindu Business Line : Brand perception

Cars waiting to be loaded into a ship at Hyundai’s captive port at its Ulsan plant. Over a million Hyundai cars were shipped out of Korea last year.

M. Ramesh

Recently in Seoul Glistening, new Genesis cars roll out of the assembly line at Hyundai Motor Company’s Ulsan plant in South Korea, but only infrequently. Other vehicles such as i20 and i30 roll past the finish line in greater numbers. But that is not a surprise, considering that the Genesis is Hyundai’s super-luxury model, one of the car maker’s latest model, which it wants to start selling in the highly competitive US market soon.

Hyundai wants to pit the Genesis alongside Mercedes E-class, BMW 5-Series and Lexus GS.

Hyundai is no stranger to the US market. Last year, it sold 5.4 lakh cars there and expects to sell over 6-lakh cars in 2008. Because it knows the US market well, it recognises the prime challenge: brand perception.

“Brand perception (of Hyundai) is lagging real worth,” says Mr Oles Roman Gadacz, Director, Global PR Team, International Business Division, Hyundai.

Gloss factor

In Korea, Hyundai is an automotive giant with a 65 per cent share of the car market (including the sales of its subsidiary, Kia Motors.) But in the overseas market, the Hyundai brand is not as glossy as Toyota’s or GM’s, or even Honda’s. Hyundai believes that there is no reason for this to be so.

Mr Gadacz told a team of visitors from India, which included a few journalists, that the ‘residual value’ of Hyundai’s cars was low (The visit was sponsored by Hyundai). ‘RV’ is the value of a car at the end of the lease period, after it is returned by the lessee. “We are working hard to improve it,” he said. A low RV raises lease costs and dampens sales. Consequently, the dealers are less zealous over selling a Hyundai car. “Working hard” includes an ad blitz across the world, focusing on international and local themes. ‘Football’ is a key part of the campaign — the company sponsored the 2006 World Cup and will sponsor the next two as well, and the 2009 Confederation Cup. More of ‘landmark bill boards in key cities’ will be another component of the campaign. Alongside these efforts will be services such as free check-ups for Hyundai cars.

Defect reports

Mr Gadacz presented J D Powers’ IQS figures (‘initial quality study’, which measures quality in the first three months after purchase) to show that Hyundai’s rating has been steadily rising. From 145 defect reports in 2002, figures for Hyundai dropped to 125 in 2007 and the number was better than for Toyota in 2004 and 2006.

In 2006, Hyundai was the third least defective car in terms of IQS. It did slide to the 12th rank in 2007, but Mr Gadacz attributes it to the start-up problems related to its new plant in Alabama, US.

Similarly, ‘vehicle dependency study’, which measures the quality of the vehicle three years after purchase, gave pretty high marks to Hyundai. “Our cars are better, but our RV is low,” said Mr Gadacz, calling it a “conundrum”.

Overcoming this perception is the biggest challenge to Hyundai, which hopes that between now and 2011, its overseas sales will grow over 50 per cent — to more than 3.2 million cars.

Ulsan plant

The company is adequately equipped to have a tight control over costs. At the Ulsan plant, the advantages are evident. Producing 1.7 million cars a year, the plant is the largest automotive plant in the world. It produces 5,600 cars each day.

To illustrate the enormity of the operations look at its electricity bill: $150,000 (Rs 60 lakh) a day. This, interestingly, is lesser than what it spends on providing lunch and dinner to its workers, which is about $200,000 (Rs 80 lakh) a day.

The sheer size of operations imparts amenability to cost control. For instance, robotics. The Ulsan plant has about 600 robots —watching their clownish movements is enough to kill a day’s fatigue.

But there are other advantages too. Ninety per cent of the steel comes from nearby POSCO, a Hyundai group company. At the southern end of the Ulsan plant is a captive harbour, from where cars drive into the bellies of ships. These ships call on the port several times a week and many of them are owned by Hyundai. And where do you think Hyundai-owned ships are made? At Hyundai-owned shipyard — in Ulsan.

And hence Hyundai Motor’s unspoken mission statement: fix the brand perception problem.

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