Kia eyes BMW, Audi; aims to add technology

SEOUL -- When Lee Soon-nam joined Kia Motors Corp. three decades ago, his job was buying engines for Kia's vehicles from Japanese rivals such as Hino Motors Ltd. and Daihatsu Motor Co.

At international motor shows, Kia's executives spent their time scrutinizing the latest models from Japan. The German luxury brands were clearly out of their league -- no point scoping them out.

"We had no chance to look at BMW, Audi. It was a waste of time and money," Lee, who now is vice president of Kia's overseas marketing group, said. "These days, we always allocate time" to checking out the top German automakers.

Today not only is Kia benchmarking BMW and Audi; it is crawling out of the shadow of its bigger corporate sibling, Hyundai. Its new goal: model its own brand identity after Volkswagen's as it seeks to be mass-market yet one notch above the pack in terms of quality and flair.

Oh Tae-hyun, COO in charge of Kia's international business division, said: "Eventually, Kia would like to be one of the mainstream brands like VW."

In interviews with Automotive News, top Kia executives said the automaker has a two-pronged strategy to build and distinguish the brand: an unrelenting focus on quality and the rollout of a lineup packed with technology.

But they also worry that the brand-building push could be undermined either by boosting output prematurely to meet sales targets or by decontenting vehicles to cope with unfavorable currency rates.

Kia is on track to join the volume players, thanks to an explosive threefold increase in global sales since 2002.

Kia sold 2.7 million vehicles worldwide in 2012 and targets a 28 percent surge to 3.5 million in 2016. It expects its U.S. sales to rise 6 percent to 590,000 this year from a record 557,599 in 2012.

That rampant expansion has executives worried.

Kia's global sales are constrained by a lack of production capacity. But executives are reluctant to invest in more output. They want to make sure the company and its suppliers can cope with the surging workload, lest quality deteriorate.

Oh and Lee conceded that may mean sacrificing market share. Despite a 15 percent rise to record U.S. sales last year, for example, Kia saw its market share finish flat at 3.8 percent. In the first two months of this year, its share shrank to 3.5 percent from 3.9 percent a year earlier as Kia's sales fell 3 percent vs. the market's 8 percent gain.

"For the time being, we have to look at quality over quantity," Oh said. "Who gives the final go-ahead for start of production? It's not the chairman. It's not a salesman. It's not the finance or planning or procurement people. It's the quality-control people. Without their agreement, we can't move one inch."

Executives point to the carmaker's Pilot Center, which opened several years ago at the Hyundai-Kia tech center south of Seoul. Before being approved, each model runs through this test assembly line and is scrutinized for possibly production glitches.

Lee conceded it is probably impossible to reach Kia's 2016 sales goal without a new plant.

The target means selling 800,000 more vehicles, and Kia's capacity is already running flat out. A 300,000-unit plant opens in China next year. But that still leaves the brand a half-million cars short.

"In my opinion, it's impossible," Lee said of hitting the target without another plant. "But no decisions have been made" about another factory.

The technology part of Kia's brand-building strategy centers on powertrains.

To set itself apart from Hyundai, Kia will expand the use of downsized turbocharged engines, introduce dual-clutch transmissions and expand its range of hybrid vehicles.

Kia began using downsized turbos before Hyundai, to good effect. "We built a good brand image, we improved our customer profile and we conquered more premium customers," Lee said.

He detailed more of the planned changes, all designed to hone Kia's sportier image.

• Kia's 2.0-liter turbocharged, direct-injection engine, currently used in the Optima sedan and Sportage crossover, will be deployed to other nameplates as those vehicles are redesigned. Lee did not identify the models getting the 2.0-liter turbo but said they would be Optima-class cars and above.
• A 1.6-liter turbocharged, direct-injection engine will be offered in the redesigned Forte small car arriving later this year. Hyundai's counterpart, the Elantra, doesn't offer a turbo.

A new, as-yet-unannounced vehicle -- which Lee described as a "brand iconic model" -- also will get the 1.6-liter turbo. That car is expected to arrive in 2015, Lee said.

He did not identify the new car. But it could be based on the Track'ster Concept unveiled last year. That car, which is essentially a three-door, all-wheel-drive version of the Soul city compact, is on the short list for production.

• In Europe, 1.0- and 1.2-liter turbos, also with direct injection, will be offered on the Rio and Cee'd small cars.
• Kia also will expand its use of dual-clutch transmissions, bringing them to the United States in 2014 or early 2015, Lee said. Those transmissions tend to be more fuel efficient than standard automatics and have a sportier feel.

Dual-clutch transmissions likely will debut with a reskinning of the Forte, which may come two years or so after the car is redesigned for the 2014 model year, he said.

• Kia will roll out gasoline-electric hybrid options on additional models starting in 2015. Lee declined to identify the vehicles but said hybrid drivetrains would be added to a Forte-class sedan and a compact crossover.
• The company also will launch its first plug-in hybrid by the end of 2015 in a version of an existing nameplate.

That emphasis on performance-oriented technology is aimed at lifting Kia's image closer to VW's.

"VW has everything from very small to very big, up to the Phaeton and vans and convertibles and everything, but within the volume brands they have a kind of premium quality," said Peter Schreyer, a president at Hyundai Motor Group overseeing global design at both Kia and Hyundai.

"I think in both brands we have already reached quite a good standard in perceived quality that probably puts us ahead of other volume makers."

Yet looming over this technology and quality build-out is a new threat: the South Korean won's recent climb against the dollar and Japanese yen. That currency shift makes Korea-built cars less price competitive in the United States and other overseas markets.

For now, Kia expects to cope mainly by cutting costs in the r&d stage of product development and shifting its lineup mix to upper-level trim packages and limited editions with fatter margins.

But if the won woes worsen, it may mean decontenting, in the form of cutting features and content, or turning previously standard features into pricey options.

"Currently we are discussing ways to find what are the optimized features," Lee said. There are some features, he said, that customers don't care about. "We are studying whether these features are important to customers or not. If we delete these features, what would be the problem?" he asked. "This is our new solution."

Kia engineers haven't culled any features yet, Lee said. But he needs to consider such cuts if the won continues to rise against other currencies, to the detriment of exports from Korea.

Japanese automakers have sought to hedge against currency swings by building more vehicles in North America, thus reducing their reliance on Japanese exports. But while Toyota, Honda and Nissan all have multiple assembly plants in North America, Kia has just one, in West Point, Ga., and some of its capacity is being used to make the Hyundai Santa Fe.

So for Kia, the pressure to build another factory outside Korea is growing -- and not just to hit sales targets.