Hyundai and Kia Teach Auto Industry How to be a Loving Dysfunctional Family

By Jacob Brown | February 14, 2012
You get the impression sometimes that people just don't understand the relationship between Hyundai and Kia. They're fundamentally both part of the larger conglomerate of Hyundai Heavy Industries. But they're different, like Romulus and Remus, but without the whole raised-by-wolves aspect. In the U.S., Kia and Hyundai see one another as they see competition like, say, Honda. Financial analysts see the two companies as something of an oddity, however, in that they overlap much of the same market. "Sales growth without cannibalization is impossible under their current corporate structure," says Im Jeong Jae of the Seoul-based fund manager that handles both Hyundai and Kia. "The two companies' target markets are almost identical, which makes cannibalization unavoidable, and difficult to solve anytime soon." You sense panic in those stakeholders because the rapid growth achieved by these two companies will eventually dissipate, leaving those who bought into Hyundai and Kia scrambling for the next hot blue chip. Hyundai's stock rose 23 percent last year and Kia increased 32 percent on the back of hot sales and new products launches.
But Hyundai and Kia aren't trying to be the biggest, as explained by Kia's Michael Sprague in an article for Motor Trend last month. Cars aren't even Hyundai's greatest money-maker. That would be freighting and steel production. This is just a side hobby to keep the conglomerate balanced in the off chance that one of its other divisions fails. Diversification, as they call it.
Of late, Hyundai's fluidic sculpture design has clashed with the more conservative designs from Kia. Korean buyers have taken notice, with the Kia Optima experiencing a 300-percent increase in sales in Korea while the Hyundai Sonata enjoyed just a 5.2-percent increase. Ninety percent of the cars on Korean roads are domestics, so it's not likely to sway the brands' dominance of their home turf. However, Hyundai's sales were up 12.3 percent last year to 3.6 million vehicles and Kia increased 18.6 percent to 2.5 million worldwide. The Korean market showed just a 3.6 percent increase for Hyundai and 1.8 percent increase for Kia. The two Korean brands compete with themselves, as they do other automakers, to force themselves to make internationally relevant products—something that wasn't always possible. Western companies, especially in the U.S., live quarter to quarter, always fretting about share prices and instant gains. There's a more of a long-term outlook in the Korean companies. Yes, they do compete with one another, and at some point outside Korea they will very likely start cannibalizing each other's sales without more differentiation. But as one of my marketing professors said back in college, if you don't cannibalize yourself, someone else will. Sources: Bloomberg via Akron Beacon Journal, Motor Trend, Hyundai, Kia Motors