The Korean Mouse That Roared

A disaster in the making: That's what analysts and investors saw when Hyundai Motor Co. announced in 1998 its intention to acquire insolvent Kia Motors Corp. After all, the Asian crisis was raging. At the same time, Hyundai Motor's parent, Hyundai Group, was so weighed down by deadbeat units that it seemed incapable of digesting Kia.

Today, Kia is a company transformed. Its pretax profit in the first nine months of 2001 was $368 million, up 180% from a year earlier. Kia, long associated with cars that are cheap and cheerful, is making steady inroads in the U.S. with models such as the Spectra, featured in irreverent TV ads aimed at the college set. Says Song Byoung Jun, an analyst at the Korean Institute for Industrial Economics & Trade: "Kia is a pleasant surprise. No one expected such a swift makeover."

"A MIRACLE." At first, Hyundai Chairman Chung Mong Koo's turnaround blueprint looked preposterous. When senior execs drew up a plan to cut Kia's loss to $855 million in the first year, Chung ordered them to double the sales target for the year, to 800,000 vehicles--and make a profit. "It looked like a goal you couldn't pull off without a miracle," recalls Yang Sung Joon, Kia's executive vice-president in charge of planning. "But then Kia made it."

What Hyundai brought to the table was speedy decision-making--something new for Kia. The first thing Hyundai did was cut the number of models from 30 to 20. In the process, it eliminated several me-too vehicles competing in the crowded, midsize car and minitruck segments. Over the next 2 1/2 years, Hyundai more than tripled production of the Carnival minivan while cutting back on car output.

Next, Hyundai began looking for synergies. To boost Kia's lineup, the larger auto maker shared the platform of its popular Sonata sedan with Kia's new midsize Optima while making a minivan and minicar on behalf of Kia. Kia also shed about one-third of its workforce, going from 44,000 workers to 29,000 while merging Hyundai and Kia's research and development, after-sales services, and procurement departments. Projected savings from sharing parts, purchasing, and platforms between 1999 and 2004: $5.7 billion.

Now, Kia is cashing in on the craze for minivans and sport utilities at home and in the U.S. The new Sedona, a small van with a V-6 engine, is already selling well in America, and Kia aims to penetrate the midsize-SUV niche next year. "We've only plugged the holes so far," says Lee Ji Won, Kia's marketing chief. Still, that's not bad for a company left for dead three years ago.

By Moon Ihlwan in Seoul

    Before it's here, it's on the Bloomberg Terminal.