Kia in the rearview mirror, but gaining fast

Image: 2010 Kia Soul
Kia Motors America all-New 2010 Soul. Can Kia turn a niche product into mainstream success?PR Newswire file
/ Source: contributor

When you’re taking on a tough market, like the U.S., it helps to do a little Soul-searching.

The South Korean carmaker, Kia, has spent decades trying to crack the American market, but until recently, with little success. Suddenly, the importer seems to be gaining traction, and industry analysts are suggesting Kia’s new Soul crossover-utility vehicle is a major factor. The challenge the company faces is turning a niche product into mainstream momentum.

“I like to describe Soul as the affordable halo car,” suggests Kia of America’s Vice President of Sales Tom Loveless. “It connects with the consumer emotionally. It has huge potential for us.”

For years, Kia lived in the shadow of its bigger sibling, Hyundai Motors. It didn’t help to have a reputation for building cheap-and-cheerful products with limited appeal to the fringes of the American automotive market, to smaller, less trendy communities and poor-credit customers.

Suddenly, however, Kia is carving out an identity of its own. Recent reports, including the 2009 Initial Quality Survey, or IQS, from influential J.D. Power and Associates, shows the maker is beginning to get a handle on build and reliability problems — though it’s still below industry average — even as it rolls out a sequence of new, and decidedly more distinctive products.

“In an economic downturn, they’re still a brand with value-priced products,” says Stephanie Brinley, an analyst with the California-based research firm, AutoPacific, Inc. “But this time, they’ve also got some particularly strong products with much broader appeal, especially the Soul.”

The boxy crossover has received generally rave reviews and its video ad campaign, featuring a pair of hip-hop hamsters, has become a viral success among the YouTube generation.

“They’re in a little bit of a sweet spot right now,” says Brinley, “and they’re backing that up by spending more on advertising, even as other makers cut back.”

Industry data show that this is paying off. While the overall U.S. car market is down by a third from already-anemic 2008, Kia’s numbers are off less than 7 percent for the first half of the current year. More significantly, its market share — which has increased for 14 years in a row — has soared from 2 percent, for all of 2008, to 3.1 percent for the first half of 2009.

“While we don’t know how things will work out for the year, as a whole,” says Loveless, “we’d have to shut down completely not to post some market share gain in 2009.”

That’s all the more likely considering the Soul is just the start of a new product assault. Next in line is what Kia strategist Fred Aikens describes as the “foundation of the franchise,” the all-new Forte sedan.

It won’t be easy to build on that foundation, considering Forte takes on such Japanese powerhouses as the Toyota Corolla and Honda Civic. Initial reviews have been more than favorable, and industry expectations are especially strong for the distinctively styled Forte Coupe, which will follow to market later this year.

Beyond that, Kia plans more unique replacements for an array of existing models, including the Sorento, Sportage and Optima, and company officials hint that other, edgier models, inspired by Soul, will soon join the line-up.

There are still plenty of issues to overcome. Those recent quality gains are, as one analyst cautioned, just the price of admission. Kia still needs to bring itself closer to arch-rivals like Toyota — which came in seventh in the latest Power IQS, with an average 101 problems for every 100 vehicles — and Honda, the fifth-ranked brand, which averaged 99 problems.

Kia slipped into 16th place, with 112 problems. The industry average was 108. But it has only to look to its sibling, Hyundai, for inspiration. The other Korean maker actually nudged past Honda, to slip into fourth place. And, like its brother brand, Kia continues to offer an industry-best 10-year warranty to soothe consumer concerns.

Then there’s the consideration factor. Kia’s challenge is not just to increase awareness but to actually get American shoppers into its showrooms. During the 1990s and early part of this decade, as few as one in seven would even consider giving a Kia a serious look. Now it’s up to roughly one in five. That’s still a small subset, but for a minor player, it adds up quickly.

“We don’t expect to go to bed, one night, and wake up the next morning a new brand in people’s minds,” admits Loveless.

But Kia is betting that with products like Soul and Forte, and with steady improvements in quality, it will experience what Loveless describes as a “gradual” process that starts with building awareness and then improves perceptions. If he’s right, Kia is all but certain to experience its 15th consecutive annual increase in U.S. market share.