Kia Fastest-Growing U.S. Brand Suffers in Hyundai Shadow
Kia Motors Corp. (000270), with sales rising 78 percent from 2008 to last year, has been the fastest-growing brand in the U.S. What it hasn’t been able to do is shake the role of little brother to larger affiliate Hyundai.
Hyundai Motor Co. (005380) is Kia’s biggest shareholder, and the two Seoul-based automakers share a chairman, vehicle platforms and powertrains. They also compete for resources and customers, and that’s where the relationship is unequal: Hyundai buyers consider Hondas, Toyotas and Fords and largely eschew Kia. At the other end, Kia shoppers are mostly looking at Hyundai.
“For Kia it’s like the younger brother who asks a girl out on a date, who tells him I’m actually more interested in your older brother,” said Alexander Edwards, president of San Diego- based Strategic Vision’s automotive practice. “Only about 5 percent of all Hyundai buyers looked at Kias.”
While the rivalry between the Korean companies, which operate separately in the U.S., mirrors that in their home market and globally, Kia still lags, even as demand for Soul wagons and Optima sedans grows. The lack of awareness limits the brand’s potential and forces the carmaker into profit-sapping discounts, which have grown to double those offered by Hyundai.
“Kia never really came up in conversation or in my research at first,” said Chris Ferguson, a Fairfield, Ohio, resident who bought a Hyundai Elantra early this year, rather than Kia’s competing Forte compact. “Don’t get me wrong, they weren’t bad vehicles, but they seemed to be the economy version of the Hyundai.”
After surging 36 percent last year, Kia’s U.S. sales of cars and crossovers are up a further 32 percent this year through March. At the current pace, the company may sell more than 550,000 vehicles this year, more than double its 273,397 U.S. sales in 2008. Kia uses ads featuring Blake Griffin, the professional National Basketball Association’s reigning rookie of the year, as well as dancing hamsters to promote its models.
Hyundai’s U.S. sales are up 15 percent through March, and may exceed 650,000 units, based on the company’s market share forecast. Industrywide U.S. light-vehicle sales rose 13 percent in the quarter.
Hyundai, while increasing sales less rapidly than Kia, has managed to trim incentives by 26 percent so far this year to an average of $823 a vehicle, while Kia has boosted discounts by 8.5 percent to $1,677 a vehicle, according to researcher Autodata Corp.
Hyundai is considered by about 20 percent of new-car buyers, according to Strategic Vision, which surveys about 300,000 people a year for its automotive studies. That 20 percent marks a crucial threshold, he said, making Hyundai a competitor to mainstream brands of Toyota Motor Corp. (7203), Ford Motor Co. (F) and Honda Motor Co.
Only 9 percent have Kia on their shopping list, Edwards said.
Toyota is the most frequently considered brand, at 41 percent of those surveyed, followed by Honda at 37 percent and Ford at 35 percent, Edwards said. While Hyundai’s consideration level matches that of Chevrolet and Volkswagen, Kia’s ranks just behind Chrysler Group LLC’s namesake brand at 10 percent.
“If you look at reverse cross-shopping data, 16 percent of Toyota buyers said they also looked at Hyundai,” he said, citing Strategic Vision data. “Only 9.6 percent of Toyota shoppers say they looked at Kia.”
Hyundai’s addition of premium Genesis and Equus sedans, “helped enhance brand awareness as it targeted a wide range of customers, which led to improvements in Hyundai’s brand value,” said Kim Byung Kwan, an analyst at Mirae Asset Securities Co. in Seoul.
“Hyundai has been aggressively marketing their products in U.S. for quite some time; Kia has only just begun,” Kim said. “Hyundai’s lineup is fully diversified, from small cars to luxury sedans.”
The Hyundai-Kia partnership is among the industry’s more unusual. The brands aren’t divisions of a single company and maintain separate factories, finance, sales and design operations. Still, their global headquarters face each other in Seoul and many of their models share identical underpinnings.
“Some consumers may know the two companies share a lot,” said Ivan Drury, an analyst with Santa Monica, California-based Edmunds.com.
Their relationship started in 1998 when Hyundai Motor led a 1.18 trillion won ($1 billion) purchase of a 51 percent stake in bankrupt Kia. Chung Mong Koo, chairman of both, placed his son, Chung Eui Sun, as president at Kia in 2005. Hyundai now holds a 34 percent stake in Kia.
The companies are South Korea’s two largest carmakers, dominating vehicle sales at home with a combined 75 percent market share in the year’s first quarter.
Unlike the alliance between France’s Renault SA and Japan’s Nissan Motor Co., which share equity ties, platforms and components, Carlos Ghosn, chief executive officer of both, keeps Renault out of the U.S. to avoid direct competition with Nissan.
U.S. factory managers for Hyundai and Kia say they compete with each other to increase output and eliminate production defects to meet quality goals set by Chairman Chung.
Hyundai’s Montgomery, Alabama, plant also makes engines for Kia’s factory 90 minutes east in West Point, Georgia. In return, Kia builds Santa Fe sport-utility vehicles under contract for Hyundai on the same line that makes its own Sorento SUV.
Rising U.S. sales helped Kia post a 26 percent increase in first-quarter profit, the company said last week. Kia’s 1.2 trillion won in net income for the period beat the 948.2 billion won average of 26 estimates compiled by Bloomberg.
‘Just Another Brand’
Hyundai’s view is similar. “When our executives are in the conference room, we’re talking about Kia the same way we talk about Honda, Toyota and Ford,” the top brands the company competes with, said Jim Trainor, a spokesman for Hyundai Motor America in Costa Mesa, California.
Along with the Soul and Optima, Kia’s sales gains come from its Sportage and Sorento sport-utility vehicles. Those models distinguish it from Hyundai, said Andrea Pereira Pfister, who recently bought a Sportage.
“The interior sold me; the leather seats feel really luxurious,” said the Long Beach, California, resident who does promotional marketing. “If I’m going to buy an SUV, I’d go hands down with Kia.”
Hyundai’s Santa Fe, Ford’s Edge and Nissan Motor Co.’s Rogue were also on her shopping list. “The Hyundai kind of seemed like the ugly older sister,” Pereira Pfister said
Still, Kia products don’t win across the board. “It’s kind of specific to their SUVs,” she said. “If I was going to buy a sedan, I’d definitely look at the Hyundai first.”
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