Future of Korean auto industry
“Car guys vs. Bean counters,” a book written by Bob Luts, has been under the spotlight. Bob Luts, a globally eminent guru in the automobile field, emphasized in his book that an automaker should concentrate on the best-quality product which could be designed and manufactured by so-called “Car guys,” engineers who truly get into cars.
He added companies must be cautious about product quality deterioration, caused by “Bean counters”, those who focus more on visible figures and numbers, and excessively expand their sphere of influence into product design and R&D. That is to say, the overriding aim of automakers should be to make a car that customers are willing to pay for.
Indeed, we can easily find the similar case in GM who went bankrupt when the global financial crisis broke out in 2008. Since the beginning of the auto industry, the U.S. automakers have played a leading role in the global automobile industry, and GM had grown at a surprising rate as a leading automaker not only in the U.S. but also in the global auto market.
However, from the beginning of the new millennium, the U.S. auto industry experienced the stagnated growth along with the stiffer competition from Japanese automakers, so, as part of an effort to improve the efficiency, “bean counter” slowly started to increase their voice inside the company.
Despite the successful cost reduction and enhancement of management system, bean counters’ inordinate interference in product development killed the creativity for GM’s new models, lowering customers’ satisfaction. As a result, GM’s competitiveness had been continuously eroded and the symbol of the U.S. automobile industry was eventually not able to withstand the financial crisis.
Korea automobile industry represented by Hyundai Motor Group has been experiencing extraordinary growth for the last few years. Hyundai and Kia’s combined production is expected to reach 6.5 million unit, the 5th largest globally.
This is mainly driven by remarkably improved brand value, design and enhanced power train technology. Especially, recently developed GDi engine equipped in the new models seem to show relatively higher performance and fuel-efficiency compared to its global peers.
In 2011, Hyundai and Kia are set to achieve the record high earnings and they’re currently emphasizing the qualitative growth, leading to higher profitability. However, Korea automakers seem to face challenges in near future, given that the domestic auto demand is expected to slow down in 2012, and the depressed global economy triggered by European sovereign debt crisis has not shown any signs of the recovery yet.
On top of these, Japanese competitors are likely to show a rapid recovery from the supply chain disruption caused by the earthquake in Japan and the flood in Thailand. As Bob Lutz highlighted in “Car guys vs. Bean counters”, at a time like this, Hyundai and Kia should focus more on their own products rather than the excessive cost reduction.
Korean automakers stand at a crossroad where they succeed in another quantum leap and become one of the global leading automakers, or make the same mistake as GM and fail to do so. We anticipate a day where Hyundai and Kia successfully overcome the difficulties that lie ahead and compete shoulder-to-shoulder with the current global leading automakers such as Volkswagen in Europe and GM in U.S. with the best car made by the best car guys in Korea.