Last year was hardly a banner year for auto sales in the U.S. In fact, with a mere 11.6 million vehicles sold, it was one of the worst in recent memory. Still, depressed demand didn't stop a few car companies, including Hyundai and Kia, from setting sales records.

Hyundai's U.S. sales rose 24%, to nearly 540,000 units last year, a new record that helped the automaker claim 4.6% of the American market, its highest share yet. Kia set its own milestone, selling nearly 357,000 cars and utility vehicles, a 19% increase compared to a year earlier.

The fortunes of the two companies, which share a corporate headquarters in Seoul, South Korea, but market their products separately in the U.S., have been buoyed by their ability to build well-designed, affordable and fuel-efficient vehicles that consumers want to buy. (Hyundai Motor owns about 39% of Kia Motors. Together they form the world's fifth-largest automaker.)

A Successful Sonata

One example is Hyundai's Sonata midsize sedan (pictured). Redesigned for the 2011 model year, the Sonata largely received glowing praise from the automotive press for its sweeping styling -- Hyundai calls the design "fluidic sculpture" -- high-quality materials and construction, and good driving dynamics.

Those qualities have also helped make the Sonata a hit with consumers, too. The 2011 Sonata, which debuted in early 2010, sold nearly 200,000 copies in the U.S. last year, a 64% improvement over prior-year sales of the previous model.

On the heels of the successful Sonata, Hyundai has introduced revamped versions of the Tucson small SUV and Elantra compact sedan, which also feature the company's now-signature swooping design. Soon to follow is a refashioned Accent subcompact, which will make its North American debut at the New York International Auto Show in April.

These vehicles are very competitive within their segments, says David Sullivan, an analyst with AutoPacific, an automotive research firm. "Hyundais are no longer vehicles that you should be embarrassed to own or want to aspire to own," he says, referring to earlier Hyundai models that offered U.S. consumers little more than a low sticker price.

Setting Design Trends Rather Than Following Them


Previously relegated to rental-car fleets, Hyundais have been transformed, offering pleasing interiors and sophisticated engines that are as good as anything Japan or Germany can churn out, Sullivan says. Much has changed from the days when Hyundais were a source of jokes for Detroit's auto elite, he says. "Hyundai is looking at many of them in the rear-view mirror right now."

The company credits its sales momentum in the U.S. to its focus on two key strategies: design and fuel economy -- 86% of the vehicles Hyundai sells in the U.S. are equipped with four-cylinder engines. It's a recipe that no other carmaker has managed to pull together in quite the way Hyundai has, says John Krafcik, president and CEO of Hyundai Motor America, the company's U.S. subsidiary, based in greater Los Angeles. "I think that explains a lot of our success."

The initiative began about six years ago, when Hyundai Motor Chairman Chung Mong-koo challenged Hyundai's product-development team to lead the industry in design, rather than follow trends set by other automakers. The first product to emerge from that mandate was the Genesis coupe, which began U.S. sales in mid-2009, receiving mainly enthusiastic reviews.

The design concept, for the first time, gave Hyundai its own look and feel, says Krafcik, a veteran of the U.S. auto industry. Previously, Hyundai models were perceived as little more than knock-offs of cars manufactured by Asian competitors Toyota Motor (TM), Honda Motor (HMC) or Nissan Motors (NSANY). "We don't hear that anymore with our new designs," he says.

Demand for Elantra Far Exceeds Supply


Still, Krafcik says, unique designs don't always equal sales success. Two recent American-made examples of novel concepts that didn't meet with auto buyer approval were the 1996 Ford Taurus, which incorporated Ford Motor's (F) signature oval logo into everything from the dashboard to the rear window, and the 2001 Pontiac Aztek, one of several unappealing designs from General Motors (GM) that industry icon Bob Lutz compared at the time to "angry kitchen appliances."

The Genesis, 2011 Sonata and Elantra are all products of Hyundai's design studio in Southern California, which it shares with Kia. The Tucson, which features the same "fluidic sculpture" styling theme, was created in the company's European design studio in Germany.

As with the Sonata, the redesigned Elantra, which hit U.S. dealerships late last year, has seen demand increase significantly. Sales were up 25% in January to nearly 9,700 units. Krafcik says Elantra sales could surpass the 200,000-unit sales record set by the Sonata if they could manufacture enough of them, but he admits the company doesn't "have anywhere near the capacity for that level of volume."

Hyundai's sole U.S. plant, in Montgomery, Ala., recently increased capacity to 330,000 cars annually. After subtracting Sonata and models destined for export markets, such as Canada, that leaves manufacturing capacity for only about 70,000 Elantras.

The company believes it can easily sell more than twice that number, Krafcik says, so it will begin supplementing U.S. made vehicles with production from Hyundai's plant in Ulsan, South Korea. With capacity to produce 1.6 million vehicles a year, it is the world's largest automotive plant.

Plans call for the company to build 400,000 cars in the U.S. this year, including the Hyundai Santa Fe SUV, production of which was shifted to Kia's West Point, Ga., plant last fall, and sell slightly less than 600,000 cars in total in the U.S.

Hyundai Loses Ground on its Home Turf

Krafcik says Hyundai has no further plans to expand production in the U.S., citing the extraordinary costs involved in building new plants -- on the order of billions of dollars. "But we'll certainly look at how we do this year, see where the demand is [and] see where the demand is going."

Asian automakers, generally, are under increased pressure to manufacture cars and trucks in the foreign markets where they sell them as a hedge against foreign-exchange volatility that can pinch profits. The strong yen, for example, has led Toyota Motor President Akio Toyoda to suggest that his company may move some production out of Japan.

While Hyundai has enjoyed sales success in the U.S. and other markets, its fortunes on its home turf in South Korea have come under threat from imports, including BMW, Volkswagen (VLKAY) and Toyota. Hyundai saw its domestic market share slip 5 percentage points last year to a decade-low of 45% even as the South Korean auto market expanded 5%, according to Reuters.

Less Respect at Home

It won't be easy for Hyundai to gain back lost market share as imported cars continue to flood into the market and sister make Kia Motors continues to gain ground, Dongbu Securities analyst Yim Eun-young told the news agency.

In an interview, the company acknowledged it faces an uphill battle. "Our strong growth is well-received overseas, but we didn't get that proper recognition from Korean consumers," Sean Kim, senior vice president and head of Hyundai's Domestic Marketing Group, told Reuters. "Our priority is regaining trust and pride from consumers by doing everything from promotion, marketing and better product offering."

The home office might want to take some cues from its U.S. subsidiary, which seems to be firing on all cylinders.


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114 Comments

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textbooker2

I am very interested in Hyundai since GM and Chrysler stiffed the bond holders in order to fill the plate of the UAW. I will never buy another UAW assembled vehicle again, and that includes Ford since the UAW is involved there. If Ford would decertify the UAW I might consider them again. But my first choice is the Genesis or one of the cross over vehicles. Second would be a toss up between Kia and Volkswagen.

February 20 2011 at 1:12 PM Report abuse rate up rate down Reply
sed1cd

KIA and Hyundai are the fastest growing car brand in the US. Why do Obama and the Republicans in congress need to give them a HUGE TAX BREAK? That's exactly what is going to happen in the proposed Korean-Free-Trade Deal. More breaks for foreign companies....isn't that what Obama said he wasn't going to do?

February 20 2011 at 12:36 PM Report abuse rate up rate down Reply
gwilkes2

I pulled into a hydy lot the otherday and i can say, there new cars look sharp....Didnt test drive though....Some one mentioned on here about them being crap. Maybe you just got a bad one...Happens in all makes...I have a sebring (some people claim it was damchy worst car..lol), mine has been the best car ive ever owned.....So luck of the draw i guess....

February 20 2011 at 3:33 AM Report abuse rate up rate down Reply
tmspitrow

perhaps his will allow the american car buyer,toget a good car at a decent price,with good milage.
they never asked for money from the usa.

February 19 2011 at 2:44 PM Report abuse +1 rate up rate down Reply
Paul

As an auto tech with 45 years experence I have been worked on hyundais and impressed with their progress.The last few years their quality has been just as good as honda and better than toyota.Get yourself Consumer Reports buyers giude and look at the ratings for all the different makes of cars.Asian cars better than average,Dodge,GM & german junk,worse than average.Ford better than average.Check it out.

February 19 2011 at 1:40 PM Report abuse +1 rate up rate down Reply
navybrg

The best cars in the world are made in DETROIT, UNITED STATES OF AMERICA

February 19 2011 at 1:06 PM Report abuse rate up rate down Reply
abujawayed5

Don't know how Hyundai can lose ground to BMW, VW and the German junk?!!! only a fool will buy hyped expensive German crap!!! I tried both and trust me ,Korean made is more quality than the German garbage , especially VW and Audi!!!

February 19 2011 at 1:00 PM Report abuse +3 rate up rate down Reply
1 reply to abujawayed5's comment
Mirel

wow u can never compare hyundai to bmw or audi and it can never compete with them. By the way VW makes an audi

February 20 2011 at 9:49 PM Report abuse +1 rate up rate down Reply
galbraith1065

BMW, VW, and Explotas are allowed into Korea but not Ford or Chevy. Typical of Asian countries; they will not import from the US, only export to us. We need to pull our troops out of Korea. They make enough money to pay for their own army.

February 19 2011 at 12:00 PM Report abuse +5 rate up rate down Reply
1 reply to galbraith1065's comment
sed1cd

galbraith,
I could not agreee more. Most on this board are ignorant of the real issues. Hyuandai/Kia are the same company -heavily subsidized by the Korean government since their founding. The US has subsidized the S. Korean economy for 60+ years at the cost of hundreds of billions of US taxpayers dollars.

What has our support of Korea gotten us in the US?...closed markets to US autos, farm products and manufactured goods. Korea is no different than the other Asian parasites that destroy our economy. Meanwhile the Koreans are enjoying the gratest consumer market in the world. -US companies -autos, appliances, textiles struggle to pay decent wages and benefits and cannot compete with nationalized pensions and healthcare of Korea.
Americans cannot see the "big picture", and our politicians can only see Korean Lobbyists and campaign contributions.

When does the US stopy borrowing money from the Chinese to privde "free" military protection to the ungrateful Koreans? I'd say NOW!

When does the US start balancing trade with Korea -instead of the one-way mercantilistic practice that goes on now? How about today!

February 20 2011 at 12:01 PM Report abuse -1 rate up rate down Reply
virginia

most hyundais are made in america,but alas,with foreign parts.
my sonata(09)is a beautiful girl with all the bells and whistles still cost me 12k less than an american car.better warranty too.
she is a 6cy limited.
my family mostly drive fords and tell me sonata-nice car.lol
but she is great!

February 19 2011 at 11:47 AM Report abuse +1 rate up rate down Reply
tjcuda

McFly? McFly? Hyundai is an American car now, as most of their vehicles are built right here in the US. You cannot say that about the "big 3" auto makers, who assemble most cars in Canada or Mexico.

February 19 2011 at 11:33 AM Report abuse +2 rate up rate down Reply
1 reply to tjcuda's comment
sed1cd

tjcuda, 60% of a car is composed of what you don't see. Engineerng, design, development, marketing, testing, and yes profits...Some (about 1/2 of US sales) Korean cars may be "assembled" in the US, but the value chain is enriching the lives of Koreans, not Americans. The profits return to the Korean homeland where most of the high-value added jobs are.
The US gets almost no corporate taxes from Hyundai. A few thousand sweat-shop jobs (wages in Ala. , Ga. are about $11/hr) do not make up for what is lost.
Why do you think the US can't pay it's bills? Too much outsourcing, too many high-paying jobs have gone to Korea/Asia.

February 20 2011 at 12:10 PM Report abuse rate up rate down Reply