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Hyundai on rise, no longer building ‘disposable’ cars

Hyundai was once criticized for making “disposable” cars, but now its vehicles are impressively well-made, earning plaudits from new car reviewers and quality surveys.
Image: Detroit Auto Show Previews Newest Car Models From Around The World
Hyundai is cultivating excitement with a racy new hatchback called the Veloster, which was unveiled at the 2011 North American International Auto Show in Detroit this week. Scott Olson / Getty Images

At one time Hyundai specialized in “disposable” cars — that is, cars that were cheap to buy and cheaper to throw away when they were broken, like Wal-Mart DVD players.

No more. Recent Hyundais have been impressively well-designed and assembled, earning plaudits from new car reviewers and quality surveys alike.

Though it will likely take time for these improvements to be fully appreciated by consumers, shoppers have clearly noticed the progress Hyundai has made, and sales have rocketed to their highest-ever levels for the U.S. market.

The Korean automaker sold 530,000 cars in the U.S. in 2010, a year in which most companies were still licking their wounds after the financial crisis. The 2011 Sonata mid-size sedan led the way with 200,000 sales. The compact Elantra also sold well, but an all-new 2011 model is expected to vault the Hyundai’s fortunes ahead in that segment the way the 2011 Sonata did in the mid-size group.

Hyundai is cultivating more excitement further down the price scale too with a racy new hatchback called the Veloster that was shown at the North American International Auto Show in Detroit Monday.

This car should provide some zip to go with the seemingly endless list of pragmatic accolades accumulated by practical models like the Hyundai Sonata. That includes being named an Automobile magazine All-Star, a spot on Car & Driver magazine’s “Ten Best” list and being one of three finalists — along with the Chevrolet Volt and Nissan Leaf — for the 2011 North American Car of the Year award.

This is a remarkable reversal for a company that was mired at the bottom of quality rankings throughout the 1990s and the early 2000s.

“After 2004 they’ve been able to turn it around with their products,” observed Raffi Festekjian, director of automotive research for J.D. Power and Associates. The Elantra, Accent, Sonata and Genesis luxury sedan have all led their categories in J.D. Power’s influential rankings in recent years — a marked turnaround from earlier times.

In 1995 Hyundai was ranked 36th, Festekjian noted.

“If you go back ten years, they produced fairly unreliable cars,” recalled David Champion, director of the automotive test department for Consumer Reports. “They always seemed to score below mid-pack. Although they were cheap, that was the only reason to buy them. But nowadays nearly all their products are rated highly by us.”

Hyundai expects models like the new Elantra, the first of four planned 40-mpg Hyundai vehicles in its lineup, to extend the good sales momentum. The automaker also says it expects good things from its premium luxury sedan, the Equus, just now starting to roll into showrooms.

What? A “premium luxury sedan” from a bargain-basement brand? The conviction that Americans will spend $60,000 or more on a car from an automaker better known for offering the least expensive car in America (the Accent) sounds optimistic, to put it mildly, but the perception of Hyundai among consumers is shifting rapidly, so the brand may yet find buyers for its prestige model.

According to the customer loyalty consultancy Brand Keys, Hyundai leapt to sixth place in brand loyalty this year, making it the top automotive brand in the survey and one of only two car companies in the top 50 brands ranked. Hyundai was ranked in 295th place in the list of 501 companies rated in 2008.

“Hyundai’s increase in loyalty is largely due to significant increases in product quality, success of its new higher-end models, and the ongoing halo effect from its innovative and emotionally-resonating buy-back campaign,” said Robert Passikoff, Brand Keys founder and president, referring to a highly-successful campaign that promised to take cars back from customers who lost their jobs. It was key in boosting Hyundai sales in 2009 during the recession.

Engineering expert Paul Weissler notes that Hyundai’s incredible change of fortune has also occurred because of improved research and development capability at the company.

“When Hyundai Motor Co. opened its first ‘research and development’ facility in 1974, it hardly justified the term ‘R&D,’” he wrote in a recent article for the Society of Automotive Engineers magazine, Automotive Engineering International. “The Korean engineers were doing little more than simple facelifts on Mitsubishi-engineered vehicles.”

But Weissler identified 2003-2006 as a key period of increased engineering capability for the company, which resulted in the company employing 10,000 engineers worldwide who have contributed to the development of world-class new products and amazing engines like the one in the Sonata, which leads its class in power and efficiency.

Consumer Reports’ Champion recalls he was deluged by requests for debriefings by the company’s engineers after the magazine gave a string of Hyundai models bad reviews in 2000.

“One time they brought 23 engineers,” he recalled. “Finally, we had to say, ‘We are here to evaluate cars not to train your engineers.’ We do have our own jobs to do.”

Nevertheless, Champion said he credits the company for its responsiveness to criticism.

It’s worth noting that Hyundai hasn’t had a flawless ascent. Hyundai’s company-wide quality rating took a step forward when the company dropped the trouble-plagued Entourage minivan, said Champion. That product, interestingly, was engineered mostly by Hyundai’s Kia subsidiary, he added.

And a balky manual transmission in the sporty Genesis Coupe caused that car to drag down the company’s overall quality ratings for 2010, as the company fell from fourth overall and the top non-luxury brand in 2009 to seventh overall and third mainstream brand behind Ford and Honda, according to Festekjian. But those hiccups have thankfully been the exceptions to the rule of increasing quality at Hyundai.

And Hyundai’s cars no longer look “disposable.” Automotive Lease Guide recently concluded that the 2011 Elantra will have the highest residual value after three years of ownership of any car in the compact class.

“The all-new 2011 Elantra shines with standard luxurious features and a modest price tag, and it’s expected to be a favorite of young drivers like the VW Jetta and Mazda3 before it,” noted Raj Sundaram, ALG senior vice president.