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How Hyundai went from joke to contender in U.S. autos

By Tom Krisher

Associated Press

Published: Saturday, April 14 2012 9:30 p.m. MDT

In a Tuesday, April 3, 2012 photo, John Krafcik, president and CEO of Hyundai Motor America, is interviewed by the Associated Press, in New York. Americans were laughing at Hyundai's cars when Krafcik joined the company eight years ago. No one's laughing now. The Korean automaker's quality has improved, and it's among the leaders in fuel efficiency and styling. Sales are up more than 60 percent since 2008, the year Krafcik began running the company's American operations. (AP Photo/Richard Drew)

Associated Press

NEW YORK — Americans were laughing at Hyundai's cars when John Krafcik joined the company eight years ago.

The cars were ugly and often broke down. The only reason to buy one was because it was cheap. Jay Leno once joked that you could double a Hyundai's value by filling it up with gas.

No one's laughing now.

The Korean automaker's quality has improved, and it's among the leaders in fuel efficiency and styling. Sales are up more than 60 percent since 2008, the year Krafcik (pronounced KRAF-chick) became CEO of American operations. Hyundai's Elantra compacts and Sonata midsize sedans are in such demand that few discounts are offered. And although the company's U.S. sales are just a fraction of General Motors' or Ford's, they're growing so quickly that Hyundai is feared by every other carmaker.

Hyundai had already started to change before Krafcik arrived, offering a 10-year, 100,000 mile warranty with its cars. But the transformation from joke to juggernaut accelerated under his watch.

Krafcik, 50, is a Stanford-trained engineer and manufacturing expert. He began his career as a manufacturing engineer at a General Motors-Toyota joint venture factory set up so GM could learn how Toyota made cars. While working for the venture in the early 1980s, he saw the gap in standards between Japanese and American plants. He has focused on quality ever since.

Despite Hyundai's turnaround, Krafcik still worries about quality.

"It only takes one small mistake with a critical part in a safety-related system to derail all of the good work that we've done," he says.

Krafcik, who often wears open-collar shirts, sport coats and jeans, recently spoke with The Associated Press in New York. He talked about his management style, cup holders and the success of his company, which has its American headquarters in Costa Mesa, Calif. Here are excerpts, edited for clarity and style:

Q: Your company has made a remarkable turnaround since the early 1990s when it sold inexpensive cars that fell apart. How did you make the transformation?

A: First you had to build that foundation of quality and consumer trust. By the time we got to the late '90s, we knew that our quality was good. We knew our reputation was horrible. And the America's Best Warranty, that 10-year, 100,000-mile powertrain warranty, ended up being huge. We were able to take ourselves from about 90,000 units (cars and trucks) per year at the absolute pits of our sales — this was in the late 90s — to 300,000 and 400,000 within four or five years.

Q: That was a bet-the-company move?

A: It was an absolute bet-the-company move. If we had gotten that one wrong, then the company would have failed. And rather quickly, too, as the warranty expense and exposure are significant when you're taking a bath that big.

Q: Hyundai has pushed the envelope in its car designs, and other companies are just now catching up with the Elantra and Sonata. How did you pull that off?

A: It just takes courage and a willingness to take risks. So with Sonata, the conventional orthodoxy in the industry was midsize cars should be styled conservatively. This is typical market research talking. We know this because we talk to our midsize car buyers all the time. Here's what they say: 'Safety. Quality. I want a good value and a fair price.' And about number seven or eight on the pecking order is design. From that mentality has come the point of view that midsize cars should look like (Toyota) Camrys and (Honda) Accords and (Chevrolet) Malibus.

Q: Why would you take a risk on design when it was conventional wisdom not to?

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