Hyundai Motor Company

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  • Topic: Hyundai Motor Company, Hyundai Santa Fe, Hyundai Elantra
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CASE: SM-122 DATE: 11/14/03

HYUNDAI MOTOR COMPANY
We are disappointed when what we did is undervalued. But that’s the time we feel the need to do something. —Mong-Koo Chung, Chairman and CEO of Hyundai Motor Company

Hyundai Motor Company (HMC), the largest automobile company in Korea, went through some tumultuous events since it entered the U.S. auto market in 1986. After a promising beginning, a “Hyundai Car” became a synonym for a cheap car, suitable only for the lower class or a cheapskate. The following article illustrates how miserable Hyundai’s U.S. history was: Back in 1998, the wheels were coming off at Hyundai. Leno and Letterman regularly made the shoddy Korean car a punch line — to jokes about Yugo. The home office in Seoul couldn’t even recruit a seasoned American to jump-start the faltering company. As a last resort, the Korean bosses turned to their corporate lawyer, Finbarr O’Neill, an affable Irishman with no experience running a car company. “We were a company looking over the precipice,” says O’Neill. “I kept my law license intact as my insurance policy.”1 A few years ago, however, a variety of auto mass media began to publicize Hyundai’s high test scores for content and performance. People working with Hyundai, as well as customers and industry analysts were amazed to see the recent rapid improvement of Hyundai cars in quality ratings and sales. For example, John Wagner, a Hyundai dealer in San Jose, was proud of but surprised at a news release by the Insurance Institute for Highway Safety (IIHS). It stated that the Hyundai 2001 Santa Fe sport utility vehicle earned the highest rating in the 40-mph frontal offset crash tests conducted at the IIHS facilities. He pointed to an Auto World article, which compared the Santa Fe with the Ford Escape, the top selling model in the SUV segment, saying, “So if you’re doing serious cross-shopping, our advice is to escape the compact-SUV crowd in a Santa Fe.” The highest rating of “5-stars” by the National Highway Traffic Safety Administration (NHTSA) assigned to the 2002-3 Hyundai Sonata midsize cars was also remarkable. The quality improvements at Hyundai, combined with its timely marketing strategies, had led to a dramatic

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Keith Naughton, “Finbarr O’Neill: Kicking Hyundai to High Gear,” Newsweek, January 6, 2003.

Mooweon Rhee prepared this case under the supervision of Professors William Barnett and James March as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

Hyundai Motor Company SM-122

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increase in sales. Hyundai saw its U.S. sales increase 284,902 cars (a 315.8 percent rise) over the 1998-2002 period, while the total sales of other automakers increased by 103.5 percent. Despite this striking growth, however, HMC still observed a considerable discrepancy between the actual and perceived quality of Hyundai cars. Optimists in HMC attributed this to an unavoidable time lag between actual product quality and product reputation, and believed that time will show the truth. However, many executives felt it was necessary to come up with effective strategies to help shorten the time lag and eventually make Hyundai’s reputation comparable to Toyota and Honda. Suk-Jang Lee, a senior manager at the business strategy and planning team in...
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