THE AUTOEXTREMIST

November 7, 2012

Image is everything, as Hyundai/Kia is about to find out.

By Peter M. De Lorenzo

(Posted 11/5, 9:00 a.m.) Detroit. In the past I’ve repeatedly labeled the Korean Hyundai/Kia auto conglomerate as the new auto industry “juggernaut.” And its inexorable march forward has been awesome to watch. Each new model has fairly bristled with technology and manufacturing savvy, and Honda and particularly Toyota have started to look over their shoulders at the Korean challenge in this market. Not to mention the domestic-sourced manufacturers, who are well aware of the competitiveness of the Koreans. It was clear that Hyundai/Kia’s successful journey would continue and that it would be a key industry player for years to come.

But I also cautioned repeatedly that the upward trajectory of the Hyundai/Kia conglomerate would not continue as a rocket launch majestically arching into the cobalt sky, that they would make mistakes. It was inevitable and it’s just the way this business goes when human nature clashes with an arrogant bureaucracy and aggressive corporate goals.

And now that the EPA has forced Hyundai/Kia to reduce inflated mileage claims on 900,000 vehicles sold in the 2011-13 model years, we’re going to find out if the upward trajectory will be leveled off a bit, or if it will only be a slight vibration en route.

Myriad dealers and analysts have weighed in that this is just a mere blip for Hyundai/Kia and that nothing will change. But dealers, of course, would say that. After all anything that might threaten the good fortune they’ve enjoyed by hooking up with Hyundai/Kia at just the right time would not be looked upon kindly. Their attitude is that consumers will get paid, things will work out and they will choose to ignore it and move on.

As for the few analysts who have already weighed in, they can’t conceive of anything stopping the Korean juggernaut and that is a very defensible position as well when you think about it. Consumers have short attention spans, they ignore auto recalls at a staggering rate and they plainly do what they feel like. If there is a notable percentage of affected Hyundai/Kia owners out there who take great umbrage with the fact that they’ve been scammed to a degree, then they may look elsewhere next time. The rest? They’ll probably ignore the whole thing.

But it’s just not that simple. Why? Because the Hyundai/Kia message has been: ”We offer more vehicles that achieve 40 mpg than anybody else in the market.” Or something like that. In the frenzy of automakers racing to deliver 40 mpg to the consumer, that was pretty heady stuff for Hyundai/Kia, and you could feel the smugness emanating from every press release and every press conference appearance by their executives who were sounding cockier by the minute. They had beaten the big boys, they had it all figured out and they were not going to let anybody forget it either.

Oops.

Then came the mea culpas. Hyundai Motor America CEO John Krafcik blamed the mileage discrepancy on “procedural errors” within the company.

Really? I laughed out loud.

This from a company that prides itself on being smarter than the rest, that reminds everybody at every opportunity that they have the magic formula for success and that it will only be a matter of time before they rule the world?

I’m not buying it for an instant. There is a no way in Hell that Hyundai/Kia executives made “procedural errors.” To me this smacks of the incredible arrogance that plainly oozes out of the Korean executives as part of their rote repertoire. (I should quickly point out that they don’t have an exclusive on this mindset in this industry by any means.)

Ask anyone in this business who has worked with the Korean executive mindset for any length of time and you will get similar reports. They’re arrogant, they know better than anyone – especially their American and Japanese counterparts – and they know what they can or cannot do and they will do what they want when they want to do it according to their schedule, even though that schedule may be pure fantasy.

Just ask the litany of American executives who have worked at Hyundai or Kia in the past who clashed with this legendary mindset. I’ll offer just one example of this. The Koreans wanted to push into the luxury segments years before they were even remotely ready to do so, and any American executive who deigned to try to offer some perspective on the matter – okay, try to pound a lick of sense into them about it – was summarily dismissed.

John Krafcik is the longest-running American executive in a senior leadership role associated with a Korean manufacturer. And there’s a reason for that. He’s smart, savvy and he knows how to get what he needs to succeed in this market. He has been able to “manage” the typical Korean automotive executive tendencies well enough, while the Korean auto executives themselves have matured enough to understand that things take time and that listening isn’t necessarily a bad thing.

But this EPA smackdown? It’s a giant kimchi bowl of Not Good.

Yes, we all know this mileage game is just that – a game, played with marketing in mind and aimed at taking the temperature of consumers in order to find out just how much mileage counts in their purchase decisions, but even so there’s a level of cynicism at work here at Hyundai/Kia that even I thought was purged years ago.

To me it just doesn’t smell right. And I would bet the story is closer to this take: The industry mileage buzzword of the day – 40 mpg – became the hot button in this business about 20 months ago. You had to be able to say that you had vehicles that delivered that kind of mileage if you were to be considered a serious player for consumer affections. And you can bet that the Hyundai/Kia group desperately wanted to be there because after all, they desperately want to be considered as one of the serious “players” in this business. It consumes them, in fact.

But they weren’t quite there yet. And because they weren’t quite there they took liberties with their “procedures” and flat-out cooked the numbers.

Shocker? No. It’s consistent with who they are and what they perceive themselves to be. The leadership of the Hyundai/Kia conglomerate absolutely believes that they will one day be the largest auto manufacturer in the world, in sales volume, in prestige and in profitability. And that might just happen. But there’s a dark side to their ambition too. And that occurs when their notion of when things should and will happen for them clashes with market realities, and they force the issue.

And now they have a national embarrassment to show for it.

Will it blow over? Possibly. But image is everything in this business. You can go along building it up positively for years and years and then one big blowup and it can all be gone in an instant. Hyundai/Kia has led a charmed life for a long time now, but they’ve just found out the hard way that nothing – especially momentum in the automobile industry – lasts forever.

I would hope that the executives at Hyundai/Kia are severely chastened over this black eye but something tells me they’re not. Something tells me that they have already talked themselves into believing that it actually was due to “procedural errors” instead of owning the fact that their ingrained culture and arrogant attitude systematically brings these kinds of crises down upon them and that there will be more to come if they don’t fundamentally change the way they approach going about their business.

It’s also a clear warning to those other auto companies out there who are on that same “can’t miss” upward trajectory. Things go wrong. Mistakes are made. Unforeseen influences weigh in. And a company’s inexorable march to greatness can be derailed in an instant.

Hmm, let’s see, speaking of which, who does that remind you of? Which company has “can’t miss” written all over it and a leader who by all accounts walks on water on a daily basis?

That’s right, Sergio, you’re next. You’ve been runnin’ on your “can’t miss” espresso beans for just the right amount of time now, and things are about to get ugly.

I can just feel it.

And that’s the High-Octane Truth for this week.

See another live episode of "Autoline After Hours" with hosts John McElroy, from Autoline Detroit, and Peter De Lorenzo, The Autoextremist, and guests this Thursday evening, at 7:00PM EDT at www.autolinedetroit.tv.

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