Hyundai's focus on quality risks market share

Nov 12 2012, 14:33 IST
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Selling everything it can build, Hyundai Motor's Indian factory is bursting at the seams.   (Reuters) Selling everything it can build, Hyundai Motor's Indian factory is bursting at the seams. (Reuters)
SummarySelling everything it can build, Hyundai Motor's Indian factory is bursting at the seams.

Toyota made, another source said, referring to a perception that the Japanese automaker lost control of engineering discipline and manufacturing quality during the 2000s, as it expanded too aggressively and its global capacity climbed well above 8 million vehicles a year.

Plans to build a factory in Indonesia, another emerging market with large growth potential, were scrapped due to Chung's decree, the source told Reuters.

The expansion freeze has already crimped sales growth in the United States. Hyundai's U .S. sales expanded just 8 percent from January to October this year from the same period a year earlier, more than half the 20 percent growth achieved in 2011.

Hyundai shares fell 11 percent in October alone, in part on concerns over slower growth.

Investors are concerned that Hyundai's sales volume will not increase much next year because of its limited production capacity, said Jung Sung-man, a fund manager at Plus Asset Management in Seoul. But Hyundai's growth engine will not stall. Hyundai has piled up cash enough to build new plants.

STRATEGIC GAMBLE

At its factory 50 km (30 miles) outside Chennai in southern India, a steady stream of buses ferries about 2,000 workers to and from the plant as three shifts run around the clock.

Hyundai doubled annual capacity at the plant to 600,000 cars in 2008, and was operating at full tilt within three years.

In 2009, it exported nearly half of its Indian production to markets in Asia, Africa, Europe and the Middle East, but only 40 percent last year.

Next year, overseas shipments, including to high growth markets such as South Africa and Mexico, will likely account for just 35 percent of India production, the plant's production manager told Reuters, as local demand absorbs output.

Capping capacity to focus on quality might be a shrewd move in Europe and other markets where growth is stalling. But in fast-growing lower-priced markets such as India, analysts question whether remodelling itself as a more upmarket brand is the right way for Hyundai to go.

Hyundai has worked well in India because they offered feature-rich products at the right pricing, said Deepesh Rathore, managing director for India at research firm IHS Automotive. I'm not very convinced about their argument.

Cheap, small cars predominate in India. Market leader Maruti Suzuki's Alto, the world's biggest-selling small car, starts at around $4,500, and Hyundai's success in the country is built on its

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