Hyundai To Increase Capital Spending in 2008

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December 29, 2007

Automotive News is reporting (see attached pdf) that Hyundai Motor Company's (Hyundai) chairman, Chung Mong Koo, stated that the company will increase its capital spending by 57 percent in 2008 to $11.7 billion dollars. Hyundai primarily markets product through its Hyundai and Kia brands.

To put this into perspective I will compare Hyundai's planned investment with the capital spending of the two largest automobile companies. Toyota invested $14 billion in the 2006 fiscal year, which ended in March 2007. Struggling General Motors spent approximately $8.7 billion in its 2006 fiscal year, ending in December 2006.

With this significant increase in planned investment in its global operations, Hyundai should continue to rise in importance as a automobile company. In 1998, Hyundai was ranked 16th in production and as of 2006 ranked 6th (Table 1).

Company 19982006
Toyota 4.7m 8.8m
GM 8.1m 8.7m
Ford 6.8m 6.0m
VW 4.7m 5.7m
DCAG 4.5m 4.7m
Hyundai 0.8m 3.7m
Table 1: Manufacturer Ranked by 2006 Production

At a December 2007 Conference, Hyundai management outlined the state of company and their expectations going forward. Their strategy continues to be growth in emerging markets, increased plant productivity, improved quality and increase the breadth of the product portfolio.



Hyundai, is no longer the fringe manufacturer that once imported the plebian Excel into the US back in 1986, but evolved rapidly into a full-line, global producer of quality products. Brand perception, important for sales growth has improved with the quality of the product. According to the 2007 JD Power and Associates, Automotive Performance Execution and Layout and Initial Quality Studies, Hyundai now ranks with the industry average and continue to improve.

More importantly has been the strides Hyundai has made in long term vehicle reliability. As recent as 2003, Hyundai ranked at the bottom of the JD Power, Vehicle Dependability Study, and now measures close to the industry average.

Not only has the quality of its product improved on the objective measures, but also those which are highly subjective (styling) and not easily quantified, except through observing their appeal by increasing sales. The company will soon release the Genesis rear-wheel drive luxury vehicle, intended to take on Toyota's Lexus at a fraction of the price.

However, exponential growth could become a burden on the organization. Though, it appears Hyundai has used Toyota as a business model for global expansion it also may suffer the same growing pains if internal controls are not effective in identifying problems early. Hyundai could suffer quality issues and production inefficiencies if they do not properly balance their expanding operations with experienced management. Also, stretching human technical resources could lead to costly warranty claims and recalls; creating ill will with their customers.

I am highly impressed with Hyundai and its managements over the past decade. In a couple of product cycles, the company went from being a small South Korean manufacturer, producing mediocre products to becoming a world-class global vehicle manufacturer. I just need to caveat, that continued growth could have a negative cost if management over-extends the company. The recent recalls at Toyota show that to be true even at a company known for efficiency and excellence.

For reference Hyundais' 2006 Annual Report

Note: JD Power results attached.


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