Hotcakes: Korean Automakers Struggling to Keep Up With Demand

By Matthew Askari | September 26, 2011
A familiar luster is emanating from Asia, and this time Japan is playing spectator. Once the darlings of the auto world, Japanese automakers now seem like tired and worn behemoths. While sales figures are still commanding, gone is the giddiness and general excitement surrounding its new cars. But it hasn't left the region, it's shifted. South Korea's Hyundai and Kia literally can't make cars fast enough. With American appetites whetted by cars like the Hyundai Sonata and Kia Optima, demand is high and supply is low. According to John Krafcik, CEO of Hyundai Motor America, the company is "more or less maxed out." The automaker's lone U.S. plant in Montgomery, Alabama— responsible for producing the Sonata and Elantra— is operating at capacity, currently producing about 300,000 vehicles.
While the obvious solution would be to open another plant to increase capacity, Hyundai has not made public any such plans to do so. The company is erring on the side of caution. "One of the concerns is that our current quality systems won't hold up if they're forced to accommodate too much production," said Mike O'Brien, vice president of product planning at Hyundai's U.S. headquarters in Fountain Valley, California. Sales Momentum Continues In August, Hyundai reported sales were up about nine percent, year-to-date, and 21 percent over the previous August. Kia's sales are up roughly 50 percent YTD. While capacity is limiting the number of cars the automakers can sell, per vehicle margins remain high, with Hyundai's average per-vehicle discount a quarter of the industry average. Numerous factors have accounted for strong sales in a weary economy. A growing reputation for quality, value, and more attractively styled and finished vehicles are all contributing to demand. Hyundai has almost doubled leases on new vehicles in the past year, and the market for used Hyundais is growing too, as residual values have quickly risen to the industry's top tier. The sun may still be rising in Japan, but it appears to be glowing a little more brightly in Korea. Source: CNN/Fortune