Hyundai Motor, Kia to capitalize on Toyota's diesel engine certification fraud

An overview of Hyundai Motor Manufacturing Indonesia, some 40 kilometers east of the country's capital city of Jakarta / Yonhap

Hyundai Motor and Kia will be able to capitalize on Toyota Motor’s manipulation of quality certification for its diesel engines as the scandal presents a promising opportunity for the two Korean automakers to challenge Toyota's longstanding dominance in Southeast Asia, according to industry officials and experts, Tuesday.

Last month, the Japanese automaker admitted to reporting false data in the diesel engine certification test for 10 of its models. This was reminiscent of Volkswagen’s “Dieselgate” scandal in 2017 when the company caught heavy flak for manipulating emissions outputs of its diesel-powered vehicles to show different results in laboratory tests and real-world use.

While the latest incident may appear less controversial than the German automaker’s actions, auto experts and industry insiders argued that the two scandals are of equal gravity.

They said Hyundai Motor and Kia, both of which positioned similarly to Toyota in terms of selling reasonable-priced vehicles, need to take advantage of the Japanese giant’s tainted corporate image, particularly in the Southeast Asian market which Hyundai Motor Group has identified as its next major growth area.

Hyundai Motor's factory in Hanoi, Vietnam / Yonhap

“Toyota maintains good relationships with local subcontractors and establishes strong sales channels in the region, but Hyundai Motor and Kia can take advantage of the latest scandal to steal some market share from Toyota there,” Lee Ho-geun, an automotive engineering professor at Daedeok University, said.

While Toyota's position remains unmatched, especially in crucial Southeast Asian markets like Indonesia and Thailand, automotive experts note that there is still ample opportunity for Korean rivals such as Hyundai Motor and Kia to expand their presence in these regions. This potential is highlighted by their recent sales growth in these markets.

Toyota ranks as the top-selling brand in most Asian regions, but Hyundai and Kia have displayed outstanding sales growth in some markets, such as Vietnam and the Philippines. According to data from the two automakers, Hyundai Motor and Kia sold some 67,450 and 40,770 vehicles in Vietnam last year, respectively, gaining the title as the country’s top-selling and third-best-selling automakers.

“Hyundai Motor and Kia’s combined operating profit ratio last year surpassed most huge automakers – such as Tesla – and both automakers are gradually increasing their market share in the strategic Asian regions,” the professor said.

 

“My thought is the two automakers can boost their sales growth if they utilize the Toyota scandal in their marketing and sales activities in Southeast Asia. Hyundai Motor Group’s global reputation is not what it used to be, after rising to become the world’s third-largest automaker.”

Officials at global automakers also voiced their consensus that Toyota’s involvement in the testing fraud will negatively affect its auto sales and brand value.

“Luxury automakers – such as Mercedes-Benz and BMW – gained huge advantages from Volkswagen’s Dieselgate back in 2017 and 2018,” an official from an automaker said on condition of anonymity.

“It remains to be seen whether Toyota’s sales will be hit seriously by the latest scandal, but its involvement in such negative incidents, in itself, will do no good to revving up its auto sales and enhancing its brand identity. Considering the previous fiasco by Volkswagen, Hyundai Motor and Kia can gain a chance to raise their brand image and expand sales in Toyota’s major sales territories, even if this cannot be made possible in a short period of time.”

A spokesman from Toyota Motor Korea said the local subsidiary of the Japanese automaker has little to do with the scandal, as it does not sell any vehicles here mired in the testing fraud, and declined to comment further.

In an earlier statement, Toyota said: “We deeply apologize to our customers who have been supporting affected vehicles and waiting for a long time, and also to all other stakeholders for the significant inconvenience and concern that this has caused,” the automaker said after admitting to the irregularities.

Another official from an overseas automaker said the key reason behind the scandal looks to have been attributable to toughened regulatory hurdles here and abroad regarding non-eco-friendly vehicles.

“There has been a long-lasting trend for toughened regulatory rules for eco-friendliness in the global auto industry, and Toyota appears to have set an excessively tight internal plan to meet the standard,” the official said. “This is why sales of electric vehicles (EV) and hybrid cars have significantly grown over the past few years.”