Hyundai and Kia follow Toyota’s recipe for success

Korean carmakers are setting up plants, designing cars and improving their dealer networks in Europe

Hyundai and subsidiary Kia are copying Toyota’s successful growth plan for western Europe.

In the past 10 years, Toyota has doubled its market share in western Europe to 5.4 percent.

Toyota’s strategy has been to:

• Open assembly plants in Europe

• Design core models here

• Invest heavily in its dealer network.

The first step in Toyota’s European strategy was to open an assembly plant in Burnaston, England, in 1992, says Tadashi Arashima, Toyota Europe’s marketing president.

The factory makes the Avensis upper-medium sedan and Corolla lower-medium hatchback.

Local appeal

In May 2000, the Japanese carmaker opened a design center in Sofia Antipolis, near Nice in southern France.

Toyota says all its European core models including the Yaris, Corolla, Avensis and Aygo now are designed and manufactured in the region.

Designing cars in Europe has helped Toyota build credibility with European car buyers, industry experts say.

In 2001, Toyota added a plant in Valenciennes, France, to build the Yaris small car. It opened a joint-venture factory with PSA/Peugeot-Citroen in Kolin, Czech Republic, in 2005. The Kolin plant makes the Toyota Aygo, Citroen C1 and Peugeot 107 minicars.

Toyota also has engine and transmission plants in Deeside, northeast Wales, and Jelcz-Laskowice, Poland. Its European head office in Brussels, established in 1990, employs 1,645 people. Europeans make up a high proportion of the Brussels management team.

Dealer drive

Besides building cars in Europe, Toyota had to undertake a major dealer recruitment drive to boost sales. It concentrated on southern Europe, having been prevented from selling freely in France, Italy and Spain because of voluntary export restraint agreements that expired at the end of 1999.

“We were shocked by the lack of awareness of our name in Spain, for example,” Arashima says.

Toyota’s dealer focus has since switched to Russia.

In western Europe, the carmaker is concentrating on improving its brand image – one way has been by sponsoring a Formula One race team.

Despite finishing No. 1 out of 27 automakers in Germany and No. 3 out of 25 in France in J.D. Power and Associates’

2005 customer satisfaction surveys for those countries, Toyota believes it can do better in this area.

Follow the leader

Hyundai’s strategy for Europe sounds like a replica of Toyota’s – about 15 years later.

By 2010 most Hyundai and Kia cars sold in Europe will be sourced from two new central European assembly plants and from an expanded Hyundai factory in Turkey.

Ho-Sung Song, Hyundai Europe’s sales director, says the Korean automaker’s plan is based on three principles: products, developing its dealer network and making customers happy.

Song is concentrating on improving the quality of the carmaker’s European dealer group.

Gerry Dorizas, Hyundai Europe’s vice president, says the automaker will focus on dealer development in the coming years.

“We’ll be upgrading showrooms and operational standards, and working to change customers’ perception of the brand,” he says.

Hyundai was No. 14 in Germany and No. 20 in France in J.D. Power’s 2005 customer satisfaction surveys.

Hyundai plans to open its first European factory in the Czech Republic in the second half of 2008. The plant will have a capacity of 300,000 units a year.

In December 2006, Kia will open its first European assembly plant in Zilina, Slovakia. The factory initially will produce 200,000 units, later expanding capacity to 300,000 units.

Both plants will produce lower-medium models aimed at the heart of the European car market.

A joint Hyundai/Kia engineering center in Rüsselsheim, opened in 2003, is developing new generations of powertrains and new models that will use common platforms.

Starting next year, the effort will result in one or two new product launches each year.

On a roll

Toyota’s long-term perspective helped it achieve steady growth in Europe, says Nigel Griffiths, a London-based analyst at Global Insight. He attributes half of Toyota’s gain in Europe to higher standards in the design and quality of its vehicle interiors.

Max Pemberton, a founding partner at Pemberton Associates, an automotive consultancy in Warwickshire, England, agrees that Toyota’s sales success is “down to quality because they’re not cheap anymore.”

Hyundai and Kia are on a roll since their recovery from the Asian economic meltdown of the late 1990s: “They haven’t put a foot wrong in Europe since then,” Pemberton says.

Griffiths says Hyundai and Kia are following the Japanese pattern of getting established in Europe, including local production. But their timescale for doing so is about 10 years, or half that of the Japanese.

“In many ways, achieving the first 1 percent or 2 percent share was relatively easy. Now they have to break out of the

low-end sector into the mainstream,” Griffiths says.

Of the 15.2 million new-car sales in western Europe in 2005, 818,101 units went to Toyota and its luxury brand Lexus, according to ACEA, the European automakers association.

Toyota is catching up to Fiat Auto. The Fiat, Lancia and Alfa Romeo brands sold 983,733 units in 2005.

Hyundai sold 317,750 new cars in Europe last year.

Kia sold 242,063.

Toyota, Hyundai and Kia believe they can achieve a lot more in Europe.

Toyota’s official target is 1.2 million sales by 2010, though it is understood to have an internal plan to reach 2 million over the next 10 years.

Hyundai wants to achieve 800,000 sales in the region by 2010. Kia talks of selling 500,000 cars a year by 2008.

If they are successful, that would make life a lot harder over the next 10 years for Europe’s traditional automakers.

Said Griffiths: “I’ll admit I’ve been surprised at how sustained Toyota’s development [in Europe] has been. And there’s probably more to come.”

– Paul McVeigh contributed

You can reach Richard Feast at autonews@crain.com.