Europe Report

Europe is fast becoming a profitable playground for South Korean automakers.

Hot on the heels of success in North America, where Hyundai is already laying the foundations of a new plant, comes news that Kia Motor is the fastest growing brand in Europe.

All this just a few short years after the whole Korean auto industry threatened to crumble like a deck of cards.

Hyundai Motor was the only one to retain its independence — although Ssangyong is making an unlikely comeback — and has even successfully merged Kia Motor into its operations.

It now wants to double sales in Europe by 2005 and become a top 5 automaker by 2010. Haven’t we heard these boasts before? What’s different this time, according to Hyundai’s European chief Werner Frey, is the company is now much better prepared and has learned some harsh lessons.

“We realize that globalization goes with localization and the fact that you have to build your sales base first before you start considering new factories around the world,” he says.

The popular Getz will most likely be the first Hyundai manufactured in Western Europe.

“We are also better placed in terms of product although in Europe we certainly need to have a more distinctive model in the C-segment which is a very competitive area. The Getz is performing very well and niche models such as the Coupe, Santa Fe and Terracan will be important to us. We will have more SUV product in the near future.” This will include an SUV based on the Elantra platform which will be launched at the Detroit auto show next year. The new Sonata will be unveiled at the Geneva show two months later.

Hyundai is likely to make a decision on a European manufacturing plant within the next few months. Frey says the company is close to reaching the volumes required to make a plant viable. A European manufacturing operation, he says, was a vital component in the Korean company’s vision to be a top five automaker by 2010.

European sales are currently running at 250,000 a year, a figure Frey expects to double within the next five years. HMC is currently the third largest importer into Europe from the Far East behind Toyota and Nissan — and coming up fast on second place. A new plant would build B and/or C sector models and most probably Hyundai and Kia brand vehicles.

With volumes of the Hyundai Getz building rapidly, this is likely to be the first car to go into production. Frey adds, “In my opinion I would think we would produce both brands, two thirds Hyundai and one third Kia.”

A number of locations for the new plant have been speculated upon including Hungary, Poland, Czech Republic or Slovakia.”

Frey said that the unusual choice of Budapest in Hungary for the European launch of the face-lifted Hyundai Elantra was not a clue as to the final choice of location for the factory. “There has been no final decision,” he adds.

Hyundai and Kia’s share of the western European market rose to 3.2 percent in the first half of this year, up from 2.7 percent in the same period in 2002. In June alone sales of Korean cars were up 28.3 with Kia becoming the fastest growing brand in the region. Its sales shot up 53.8 percent in the first six months of 2003 reaching 82,000 units. Jean-Charles Lievens, vice president Kia Motors Europe, is targeting sales of 125,000 units this year and 300,000 in 2005. To achieve higher sales both Frey and Lievens are looking to increase dealer numbers across Europe by between 300 and 400 each in the next two to three years.

“Changes to Block Exemption rules have proved to be an opportunity for us,” Frey adds. “While other brands have been rationalizing their network, we are looking to increase ours and there are a good many dealers who we are interested in working with.

“There is some work we need to do on the existing network, there are too many open points in major cities and metropolitan areas while in Germany there are far too many very small dealers and that is something we have to change.”

Closing current open points, he believes, can increase volume by between 10 and 15 percent while increasing the network, currently at 2,300 across Europe, would add a similar percentage. “We also need to work a little harder on the quality of service our dealers offer, particularly as the market opens up more to independents with the changes to Block Exemption rules.”

This article was provided exclusively to Automotive Industries by Interchange, a U.K.-based automotive business agency and consultancy servicing media and corporate clients. Anthony Lewis is a partner in Interchange and can be contacted via e-mail at ajlewis@compuserve.com