To reach its target of rising to Europe's 10th-largest mainstream brand by 2013 from No. 17 now, Kia will need to boost its annual new-car sales to about 450,000 units from 262,627 last year. Kia Europe Chief Operating Officer Paul Philpott is counting on better-designed cars, a bigger share of fleet sales and expanded European production to help achieve the goal. Philpott discussed Kia's next steps with Automotive News Europe Chief Correspondent Luca Ciferri.
Is Kia's target of boosting European sales by 71 percent in two years too ambitious?
We have the product, the ambition and the dealer confidence to get there. Last year, Kia had a 1.9 percent overall share in Europe, but we enjoy a 4 percent to 5 percent share in the segments where we operate successfully. This year we are renewing our offerings in three key segments – minicars, subcompacts and mid-sized cars – which cover a combined 75 percent of the European market, so I do not think our targets are overly ambitious. They are simply ambitious.
Can you really boost sales by 15 percent to 300,000 units this year in a very weak European market?
I think that the recovery of the German market will balance the weakening in southern Europe, thus overall I expect the European market to be basically flat. In such a scenario, if we sell below 300,000 units it will be because of product shortage rather than from lack of demand. Our new Sportage has a six-month waiting list, which is far too long.
How are you dealing with supply shortages?
We plan to relocate European production of the Venga this summer from the Hyundai plant in Nosovice, Czech Republic, to our plant in Zilina, Slovakia. Hyundai ix35 production will move to the Hyundai plant and the Venga will move to our plant. This will free production capacity in Slovakia for the highly successful new Sportage.
Will this production expansion be enough for the Sportage?
In 2009, we sold around 20,000 units of the former Sportage model, and we thought we were bold in planning to more than double sales of the new generation to 50,000 units this year. But demand is currently running at an annual pace above 70,000 units, so we need the extra production capacity that this move will create.
What is your installed capacity in Zilina?
Technically, the maximum production capacity is 300,000 units a year with three shifts, but to get there we also need to increase powertrain capacity. Last year we built 230,000 units in Zilina, including supplying Kia and Hyundai products to Russia and other eastern European markets.
What percentage of Kia cars sold in Europe is built here?
European production is now critical for Kia sales in Europe. In 2010, about 60 percent of our sales were produced here in Europe. These were the Venga, Cee'd compact and Sportage models. The remaining 40 percent – the Picanto, Rio, Sorento and Carnival – come from South Korea.
What are the targets for the new Picanto minicar?
We launched the Picanto five-door at the end of April and will add a three-door variant – not offered previously – starting in September. We plan to increase Picanto sales to about 60,000 units a year from 47,094 units in 2010. The three-door is clearly an important addition, but we also have high hopes for a variant fueled by liquefied petroleum gas. Coming later this year, this Picanto will be the first model offered in Europe with an LPG system installed directly in the factory and not as an aftermarket conversion. This means the Picanto with LPG will come with Kia's seven-year warranty.
The Rio subcompact has not been a great success. Will the new model do better?
The new Rio has had a great reaction and gives us a major opportunity for growth. The design is highly attractive, the engine lineup is ideal for Europe and with CO2 emissions starting from as low as 85 grams per kilometer, we expect to be selling about 100,000 units in 2012. In addition, as with the Picanto, we are also adding a three-door variant to broaden the Rio's customer base to those looking for a cheaper model and to buyers who want a sportier variant. The outgoing Rio's styling and engine displacement were not too well accepted by European customers. We only sold 19,337 Rios last year in Europe's largest market segment and we plan over 30,000 units this year, as the new generation only goes on sale at the end of August.
Do you really need the Optima mid-sized sedan to replace the Magentis, which sold just 825 units in Europe last year?
To reach its targets in Europe, Kia needs to substantially grow its fleet sales, where a competent mid-sized model like the new Optima is a must. The Optima is expected to add between 10,000 and 15,000 sales annually from its introduction at the end of this year.
But fleet sales are not as profitable as sales to private buyers. Shouldn't you avoid them?
There's no doubt that daily rentals are expensive sales, but long-term rentals and sales to corporate customers – if treated well – are a good, long-term business. Kia is getting there on the product side and the Optima is a crucial model for fleets. We are also building a dedicated fleet infrastructure in Europe's largest markets.
What percentage of Kia sales will be to fleet customers?
We aim to remain a retail-driven company but fleet sales are crucial for our growth in Europe. Last year, Kia achieved 1.9 percent market share overall, which included a 3 percent share in retail and a 1 percent share in fleet. As fleet sales are about half of the European market, we need to grow in fleet if we want to achieve our goals. Our plan to sell 450,000 cars by 2013 means an overall share of about 3 percent. To achieve this we need to grow our share of retail from 3 percent to over 4 percent and we need to double our fleet share from 1 percent to 2 percent.
What product does Kia lack?
Once we have launched the Picanto, Rio and Optima this year, a replacement for the Carens medium minivan is our next priority. Sales of the Carens declined 70 percent last year to only 3,509 units, therefore we are not benefiting from a segment that expanded 2.4 percent to 771,341 units last year. We then need an emotional product. We would love to have a Kia roadster, but unfortunately it is not on my radar yet.