Analysis: Hyundai's focus on quality risks emerging market share

Sun Nov 11, 2012 9:25pm EST
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By Henry Foy and Hyunjoo Jin

SRIPERUMBUDUR, India/SEOUL (Reuters) - Running around the clock and selling everything it can build, Hyundai Motor's Indian factory is bursting at the seams. But as demand grows and rivals scale up, the car maker has chosen to take its foot off the pedal.

Hyundai's strategic decision to focus on quality over quantity, even as its production lines are stretched in India and elsewhere, risks losing hard-won market share and is forcing it to divert output from its plant outside Chennai away from exports to other high-growth markets to meet domestic demand.

The South Korean firm, with affiliate Kia Motors, has surged to the No. 5 spot in the global automaker rankings by offering stylish models at affordable prices.

That formula has been especially successful in emerging countries such as India, where it is No.2 by market share.

The decision to slow down was prompted by fears a growing reputation for well-built cars could suffer in a headlong dash to churn out more vehicles, but it has sparked rumbles of discontent among some executives at the South Korean firm.

"Our operations all over the world are calling for more cars. Executives tell the chairman that capacity should be expanded because they have to sell more cars," a senior Hyundai executive in Seoul told Reuters.

"But the chairman says, 'What are you talking about? We have enough capacity. What we need now is stability'," he said, speaking on condition of anonymity due to the sensitivity of the issue.

The chairman is Chung Mong-koo, whose father Chung Ju-yung founded the Hyundai Group "chaebol", as South Korea's powerful conglomerates are known.   Continued...

A Hyundai logo is seen on a car at the Paris Mondial de l'Automobile, September 28, 2012. REUTERS/Christian Hartmann