The Forbes Global 2000
Last Laugh
Joann Muller and Robyn Meredith
http://www.forbes.com

How Hyundai's carmaking prowess went from punchline to powerhouse--and is shaking up the world's auto industry.



The 2006 Hyundai Sonata made a startling entrance at the Detroit auto show in January: It descended from the ceiling. Competitors who stepped onstage for a closer look were even more stunned by what Hyundai's sleekly redesigned flagship had to offer: six airbags, electronic stability control and a long list of standard equipment, all for less than $20,000.

Hyundai has been crashing a lot of parties lately. The Korean automaker, whose shabby cars made it a laughingstock just a few years ago, wants to move into the front ranks of carmakers--which would give Detroit even more headaches. In 1998 Hyundai ranked number 12 among global manufacturers, selling 1.3 million vehicles (including those of its sister company, Kia Motors). Last year it was number 7, jumping over such makers as Renault and PSA Peugeot Citroën, with sales of just over 3.1 million vehicles.

Now it has set a grander goal: By 2010 it wants to sell 5 million vehicles globally, which would likely push it into the number five spot, now held by Volkswagen. For the moment General Motors is in first place with 9 million cars and light trucks in 2004.

Hyundai's rapid growth has been fueled by an extraordinary improvement in vehicle quality--and by targeting the once-ignored entry-level market. Last year Hyundai's cars sprang to a virtual dead heat with quality leaders Toyota and Honda in J.D. Power and Associates' annual study of initial vehicle quality. And the April Consumer Reports found the 2004 Sonata the most reliable car on the road, with just two problems per 100 vehicles.

Rivals aren't laughing anymore. In fact, Hyundai is now dictating trends that others must follow. Its success with cheap cars inspired General Motors to buy its own Korean company, Daewoo, to try to match Hyundai's offerings. Hyundai's breakthrough ten-year, 100,000-mile warranty spawned extended warranty offers by Chrysler and Mitsubishi. And the new Sonata, which goes on sale in May, raised the safety bar for midsize sedans by including stability control, a feature it will make standard on all its vehicles. A month after the Sonata's debut in Detroit GM announced it, too, would make stability control standard on all cars and trucks by 2010.

The U.S. market--largest in the world--is Hyundai's biggest target, but it's also betting heavily on Europe and on fast-growing China and India, with new plants in each region. With militant labor unions in Korea, Hyundai also plans to use India as an export base for small cars.

"It's a company we must watch out for," says Honda Chief Executive Takeo Fukui. Even Toyota, widely considered the world's best automaker, is looking over its shoulder at the Koreans. Says Toyota President Fujio Cho: "We will watch them more carefully than in the past and try not to be overwhelmed by them."

For U.S. automakers Hyundai's rise is like a rerun of a bad movie. "To some extent they are doing what the Japanese did before them, but on a faster track," says Dieter Zetsche, chief of Chrysler.

FULL Article Here: http://www.forbes.com/forbes/2005/0418/098.html