Excel gets bumpy start, but US car buyers still hear it coming
Like the General Motors X-cars before it, South Korea's new front-drive Hyundai Excel has struck a pothole, but the damage seems to be slight, and there should still be a Hyundai in the American car buyer's future. Hyundai, in fact, is poised to give Korea such a quick start in the US automotive market that Japan may wind up with the uneasy feeling it no longer owns its side of the road. At least, as soon as the Korean subcompact has its brakes fixed.
With 4,000 of the new Korean imports making a beachhead on American shores -- one that looks ominous to Japanese and American manufacturers -- Hyundai recently found that all of its cars sold in the United States are in danger of brake failure. This led to a recall last week of all Excels sold in this country.
``The brake problem is a negative,'' says Arvid Jouppi, a Detroit-based financial analyst of the auto industry. ``But,'' he adds, ``I don't believe it will have any long-lasting effect because both the United States and Canada have become inured to automobile recalls. It is the South Koreans' first experience with this kind of thing.
``I have a feeling they will learn from it,'' he declares. ``It shouldn't slow them down too much.''
Not that Hyundai looks like the kind of company with plans to go slow in this country. More than 20 years after the first Japanese car hit the road in the US, Hyundai, one of South Korea's largest industrial enterprises, is attacking the US market head on. Unabashedly, Hyundai executives say they hope to sell at least 100,000 front-drive Excel subcompacts in the US this year.
Will they make the grade?
Hyundai's record is impressive, to say the least. In spite of substandard quality on their mid-1970 models, the company came back with a strong re-engineering effort that eventually gained them entry to the auto market in major industrial nations. Two years ago, Hyundai drove into Canada with the aim of selling a few thousand cars. In the first 18 months, it retailed 30,000 cars. Today it's not only the best-selling import in the country but holds an astounding 10 percent of the entire Canadian passenger-car market.
Hyundai is no fly-by-night outfit that may or may not be around next year. Like General Motors in the United States, Fiat in Italy, or Mitsubishi in Japan, Hyundai is into a couple dozen kinds of businesses, shipbuilding and cars among them. In 1984 Hyundai racked up total sales of some $11 billion, 10 percent of Korea's gross national product.
If the South Koreans have a single overriding goal, it's to put a dent in the Japanese juggernaut. To grease the path to the sales desk, they're even simplifying the pronunciation of the name Hyundai. Rhyme it with Sunday, they chime.
A lot rides on the hopes that US car buyers will pick up the tune. If the Excel fails here, Business Week magazine predicts ``it could cause one of the most stunning reversals in in modern industrial history,'' since the Excel is generally considered the flying wedge for a host of Korean products.
Benefiting the Koreans in averting such a disaster is a tremendous pricing advantage over the Japanese, their major adversary. In the six-month period ending March 18, the South Korean currency, the won, and the US dollar remained almost even. Meanwhile, the Japanese yen in the same time period fell from 243 to the dollar to 175.
All of which translates for American car buyers into low-priced Korean cars.
As a result, Japanese carmakers are having to reappraise their marketing strategy. For at least the last five years, the high prices US and Canadian car buyers have paid have allowed Japanese automakers to sell the rest of their vehicles at or near a loss. Now they are going to have to reprice worldwide in order to recover some of these losses, says Jouppi.
Low price is a primary draw for many car buyers these days, a major reason for the early sales success of the Yugoslavian-built Yugo. The Koreans, unlike the Yugoslavians, however, have an established quality image in the US because of their consumer goods -- television sets, for example. The brake mishap should not damage this record to any major extent. The much smaller Yugo, while at least $1,000 cheaper than the base-priced Excel, is basically an updated 20-year-old Italian Fiat. The Fiat image has not been a strong selling point in the US.
Besides the currency disadvantage, another big problem for the Japanese, not to mention US carmakers, is the low cost of producing cars in Korea, where the wage rate is a fraction of what it is in Japan. The Japanese will face the same kind of quandary that has befuddled Detroit.
Voicing his dilemma, T. Chino, president of American Honda, says: ``My only concern is the exchange rate. The dollar/yen relationship is scary and it can put you out of business and there's nothing you can do about it.''
The Koreans expect to smile all the way to the bank.