Why Hyundai Will Struggle to Emulate Toyota
Date: 25-Jun-04
Country: JAPAN
Author: Kim Kyoung-wha and Chang-Ran Kim
But analysts say Hyundai will have to overcome unruly unions and spend more on research and development if it is to emulate the success of Toyota, which has become the world's most valuable and profitable car maker by far.
The way investors value the two firms also shows how much Hyundai must improve to catch up. Toyota's market value of $140 billion is 10 times bigger than Hyundai's, even though the Japanese car maker's output of six million vehicles last year was only twice as much as Hyundai's three million.
"Hyundai is very similar to Toyota 25 years ago when the Japanese auto maker kicked off aggressive overseas production," said Kang Sang-min, an auto analyst at Tongyang Securities.
"But Hyundai's path could be much tougher unless it clears the minefield of its labor militancy, which frequently hampers operations and earnings," he said.
Hyundai's union, the country's biggest and most powerful, called off wage negotiations on June 11 after demanding a 10.5 percent rise in base salary and 30 percent of net profit as a bonus. The union said on Wednesday workers would down tools for three hours on Friday and for six hours on Monday.
They also plan a full strike on Tuesday.
In contrast, Toyota's union members have not gone on strike since the early 1950s.
Hyundai, which was founded in 1967, now produces earnings that are now around 40 percent of those of Toyota, which grew from humble origins as the offshoot of a loom maker in 1937.
After what management often refer to as a "traumatic experience" half a century ago when workers downed tools and demonstrated for months to protest job cuts, relations between union and management at Toyota have been amicable.
Despite a jump in profits last year, Toyota's union members this spring did not ask for a base salary hike and sought a smaller annual bonus than the year before. Management agreed in full to the requests.
AMBITIOUS PLANS
Nevertheless, Hyundai wants to become one of the world's top five auto makers by 2010. It now ranks seventh.
Toyota has doubled sales since 1979 and has unseated Ford Motor Co as the world's second-biggest auto maker. During the same period, its market capitalization grew tenfold.
Hyundai has grown exports about 17 percent in North American markets over the last three years as it expanded its model line-up to include the Tucson and Santa Fe SUVs, although growth there has slowed somewhat this year.
Hyundai grew European sales 14 percent last year after two years of declines as it launched the smaller, cheaper and more fuel efficient Getz and Lavita models. Hyundai in May overtook Toyota as the top seller in Russia for the first time.
Exports, which account for 60 percent of Hyundai's earnings, have made up for sluggish South Korean sales, hit by rising defaults of credit card loans after a two-year consumer boom.
"The importance of expanding the line-up can't be overstated," Kang said. "Hyundai is on the right path in that Toyota was able to double its U.S. sales over the past decade through the expansion of its product line."
Hyundai and affiliate Kia Motors Corp recently unveiled plans to invest more than $1 billion extra in China. They also broke ground this year on a new 1.1 billion euro plant in Slovakia to expand their low-cost production base in Europe.
A U.S. factory is set to open next year.
QUALITY CRUCIAL
But analysts say that Hyundai must bolster R&D spending and further improve vehicle quality.
Hyundai's $614 million spending on R&D last year, or about $200 per vehicle, paled in comparison to Toyota's $5.4 billion, or $900 per vehicle.
"For Hyundai to make a successful foray into the premium mid-range segment, advanced technology and new model development should take precedence over everything else," said Sohn Jong-won, an analyst at Goodmorning Shinhan Securities.
Hyundai said last week the firm would gradually boost R&D staff to 10,000 from 6,200 now
