Sister Act: Hyundai and Kia

Kia, after building some really bad cars, declared bankruptcy in 1997, a casualty of the Asian financial crisis.

Back then, Kia was synonymous with cheap low quality cars aimed at naive, first-time car buyers from generation Y.

My subjective opinion is that the 1997-2002 Kias have inspired more antiKia web sites, negative forum posts, and derogatory blog entries than any other modern cars.

Hyundai acquired 36% of Kia's stock, and complete control, in 1998

Kia is in the late stages of a complete seven-year makeover by Hyundai.

Although Kia offers a complete lineup including SUVs, the brand strategy appears to have Kia still pursuing the youth market while Hyundai focuses up-market.

HyundaiKia was on a fast track in 2001-2004, posting double digit sales growth. But currency problems with the Korean Won and a major executive scandal slowed the stampede.

Corporate Culture Clouds Over Kia

Hyundai is engulfed in a criminal corruption scandal which has slowed the company's rapid rise. The son of embattled Hyundai Chairman Chung Mong-koo, Chung Eui-sun was appointed president of Kia Motors amid protest.

The stalled Kia makeover has regained some steam, but sales growth does not match the earlier hot streak.

Kia Motors Corp sold 26,288 vehicles in June 2007, down from 27,443 the previous June. For the first half, 154,392 Kias were sold versus 146,578 the year before, a respectable 5% gain.

While Kia vehicles are inexpensive and promise a lengthy powertrain warranty, they consistently place near the bottom in on initial quality and long-term reliability studies.

I am skeptical about auto warranty in general, and the Hyundai/Kia 10 year warranty in specific. I see lots of forum posts from Kia owners whose claims were denied because "severe weather servicing" was not done.

Consumer Reports tested eight Kias, bestowing "recommended" titles on three.

The 2007 J.D. Power Initial Quality Study, which tracks consumer complaints during the first three months of ownership, granted 3 stars for overall quality.

JD Power's current three year dependability study, based on 2004 models, ranked the Kias next-to-last, with 432 problems reported per 100 vehicles. The industry average was 269.

Strategic Vision's 2007 Total Quality Awards promoted HyundaiKia: Kia Sorento and Sedona received segment awards.

Depreciation is heavy, and although resale values have improved, they are still poor. Automotive Lease Guide residual values for 2007 vehicles places Kia at bottom of non-luxury brands at 37.2% 5 year value retention.

This high depreciation makes leasing very unattractive. Customers will find dealerships have no room to negotiate lower lease payments.

The Korean auto maker has plans to move assembly operations to North America and Eastern Europe to avoid currency fluctuation, militant Korean labor unions, and US perception as a "foreign" brand.

Construction of Kia's first US assembly plant in West Point, Georgia began in October, 2006.

With the problems that Nissan and Toyota have encountered with US production, Kia quality might suffer even more.

Little Sister, Don't You Do Like Your Big Sister Done

The temptation to badge-engineer the dowdy looking and technically backward Kias, now sharing Hyundai platforms, engines, and components, may hamper the modern engineering inputs a brand needs to prosper. Kia clones of Hyundai models will not build a distinct identity.

Without that distinction, Hyundai and Kia are competitors just like the superfluous brands at GM and Ford.

Anytime you have a manufacturer in anything near bankruptcy the financial cancer spreads to the dealer network. Dealers under duress will resort to every trick to remain profitable. With the cloud of criminality at the parent company, I doubt the leadership is coming to improve the dealer image.

Korean cars will continue to pirate market share from the U.S. domestic brands, Eurocars, and third tier Japanese builders.

But Kia has a long way to go in the quest to become a tier one company.

Plans to make Kias sportier will require more than just sheet metal and ipod jacks.

Long term pressures for product engineering excellence in the entry level segments, where Honda and Toyota have a significant lead, will challenge Kia.

The Japanese have also become pretty hip to the youth market, Kia has it's work cut out. Hondas and Toyotas cost a little more for a reason.

Houston, Texas, July 2007