Hyundai Falls Off the Pace 10/29/07

South Korea's biggest carmaker, Hyundai Motors, reported record third-quarter profits, up 45% over the same period in 2006.

Sales grew 19.6% and profit exceeded analyst expectations.

But I think Hyundai's stunning U.S. success has peaked, future market share gains will be much more difficult.

Hyundai's 2007 stateside full-year sales goal has been cut to 512K from 555K.

2006 annual sales were 455K, the ambitious U.S. target of 1,000,000 cars may never be achieved.

Hyundai Motor America has had a revolving door to the executive suite lately, as the management crime crisis on the Korean peninsula has bosses in Seoul edgy.

The result is a lack of coherent strategy, U.S. dealers dealers do not know what products to expect.

Policy flip-flops are common: dealer ad associations were recently dropped and reinstated.

Hyundai, which uses about $550 million in ads for 2007, plans to increase ad spending dramatically in 2008. In my view, this is a sign of desperation, super bowl ads instead of fresh drive-train development, reminds me of how Detroit lost the farm.

The Koreans have historically been vulnerable to currency wars, it was the 1998 "Asian Crisis" that brought a bankrupt Kia Motors into the Hyundai stable. Currency fluctuations, with the dollar falling like a rock, to around 900 Won, erase the Korean value brand's price advantage. The greenback could go below 870 Won in 2008.

Meanwhile the powerful Bank of Japan is manipulating the yen lower to protect exports, namely Toyota, Nissan, and Honda.

For Hyundai the low hanging fruit in the U.S. is gone. To regain its growth momentum, the company must fight for the lower margin customers in the world's growth markets: China and India.

Hyundai's push to the top was targeted at least one bridge too far. Setting their sights on Benz and BMW was more about having something to prove than solid business strategy.

Now they must hold the low end North American market share they have gained, and the Chinese are coming.