And from Kia, a Poor Man's Volvo
Can Kia Motors Co. spar with the big boys? The Korean carmaker has long been the butt of jokes and dismissed by American peers as, at best, an alternative to the used-car lot. But its quality and sales have improved steadily, and now it wants to cement its reputation with an all-new model: the Sorento, a midsize SUV launched in the U.S. on Oct. 7.
It's too early to tell whether the Sorento can give Kia the punch it needs to make an impact in the U.S. But the company, a unit of Hyundai Motor Co., aims to sell 6,000 Sorentos a month in the States next year. "We see Volvo drivers coming to our showrooms to trade in their cars for the Sorento," says Mark Juhn, Kia's chief operating officer.
Kia may be moving up, but it's not abandoning its traditional strategy of offering rock-bottom prices for cars loaded with extras. The Sorento, for instance, will start at $20,000, but boasts space and power similar to the Jeep Grand Cherokee, which has a base price of $28,640. The standard Sorento comes with front and rear side-curtain air bags, which are optional on most other SUVs, and a 10-year warranty--the industry's longest--for the power train.
The Sorento campaign marks a big change for Kia. Four years ago, the company nearly fell victim to South Korea's economic crisis, losing $5.3 billion in 1998. Late that year, creditors wrote off its $5.7 billion in debt and sold what was left of the company to rival Hyundai. Managers there cut Kia's lineup by a third and slashed its workforce from 44,000 to 29,000. Compensation and bonuses were realigned to reward employees for improving quality. Costs were trimmed by sharing platforms, parts, and research with Hyundai.
Since then, Kia has gotten steadily stronger. After racking up sales records in the past three years, Kia forecasts a further 13% increase in revenues, to $11.1 billion, this year. Pretax profits are projected to jump 29%, to $640 million. And while Kia quality still ranks below average, it was the most improved brand in J.D. Power & Associates Inc. initial quality survey this year.
Now, Kia is betting that the Sorento and a minivan called the Sedona will take the company to the next level. Early signs are encouraging: The Sedona has been a moderate hit in the U.S., selling 46,800 cars since it was introduced last year. And the Sorento is so popular in Korea that there has been a three-month waiting list since it was introduced in February. Kia is expanding its production lines to crank out 200,000 Sorentos annually by next June, up from 120,000 now.
Some doubters remain. Kia "has chosen the right strategy and the right model, but they still face the enormous task of shedding their stigma with U.S. car buyers," says Mark Yoon, an auto analyst at Merrill Lynch & Co. in Seoul. Kia may be forced to endure fewer used-car jokes, but it still needs to fight for respect in the U.S. market.
By Moon Ihlwan in Seoul