Hyundai is still killing it

August 24, 2012: 5:00 AM ET

If you think the global recession has done anything to dull the South Korean automaker's ambition, think again. Hyundai still wants to rule the road -- and it looks like it just might.

By Doron Levin, contributor

hyundai

Click above to see a slideshow behind the scenes at Hyundai, from Fortune's 2010 cover on the automaker's monster success.

FORTUNE -- Hyundai Motor Co. is bucking an uneven economic recovery in the U.S., deepening its foothold as rivals lose ground and have been forced to discount their vehicles.

The Hyundai success story has been years in the making. Interest in the Hyundai brand is peaking after years of obscurity when consumers didn't know it well or regarded it poorly regarded compared to Honda (HMC), Toyota (TM), Ford (F) and others. As a result, sales lately are outstripping Hyundai's ability to build enough cars, keeping dealer inventories tight and transaction prices high and tight.

Hyundai has positioned its newly designed, U.S.-built 2013 Santa Fe crossover utility vehicle, to compete with models like the Ford Edge, Chevrolet Equinox and Toyota RAV4. The automaker sees the Santa Fe's main advantage as offering superior value and fuel efficiency. By Hyundai's reckoning, for example, the retail price of its $28,525 Santa Fe, with a 2.0-liter turbo engine, is $120 less than the comparable Equinox and $1,015 less than the comparable Edge.

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Built at a factory owned by Hyundai's Kia Motors affiliate in West Point, Georgia, the so-called "sport" version will accommodate up to five passengers. (Hyundai operates a second U.S. plant in Montgomery, Alabama.) A long wheelbase version of Santa Fe, available with a third row of seats, will be imported from South Korea.

Hyundai executives say the brand's emphasis on value pricing, superior fuel efficiency and design "have worked well at a time when a lot of American buyers are rethinking their choices," in the words of Mike O'Brien, vice president of product planning. One brand study shows that respondents with a positive opinion of Hyundai rose to 54% in June, an all-time high, from 30% five years earlier.

Higher regard for Hyundai vehicles is reflected in the higher prices paid for its models, as consumers give the brand credit for higher value and are willing to spend more for optional equipment. According to Edmunds.com, an automotive website, the average transaction price paid for a Hyundai model was $20,985 in 2007. This year the average transaction price has grown to $23,126, a whopping increase of 10.2%. The average transaction price for the industry during the same period grew 7.5% to $30,326 per vehicle.

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At the same time, Hyundai has been among those manufacturers that have had to discount their vehicles the least in order to sell them. According to Edmunds.com, Hyundai discounts have been the second or third lowest of the 18 or so tracked by the website, less than $1,000 per car for most of 2012. That puts it in better shape than even BMW, which has typically not had to spend much to entice customers to buy its tony products.

Overall, the company has improved its position vis-a-vis competitors in other important ways. In terms of market share, it is up to 5%. Together with its Kia affiliate, that gives the Korean manufacturer 9% share -- more than Nissan's 8% and within striking distance of Honda's 9.7% through July. Michelle Krebs, a senior analyst for Edmunds.com, said Hyundai "got a lot of momentum last year from the Toyota Camry recalls just at a time when they were starting to sell their Sonata. Toyota's problems aren't part of the equation any more."

John Krafcik, president of Hyundai's U.S. operations, said the automaker could sell more cars and always is toying with the implications of another factory and more capacity. For the time being, weaker demand in Europe has meant that some vehicles that would have been sold in that region now can be shipped to North America instead.

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Hyundai executives are cautious about growing too rapidly. They witnessed the loss of reputation at Toyota when the automaker known for quality and attention to detail cut corners in order to be No. 1 in the world. Hyundai will build more factories, maybe another in the U.S., once executives are convinced expansion won't bring unintended difficulties.

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