Hyundai's Sales Drop While Ford's Rise

Are Hyundai and its corporate cousin Kia headed for a fall?

Hot sales growth for the Korean auto giant has been one of the brightest stories in the automotive sector in recent years. Both companies' U.S. retail sales were up 27% in the first quarter of 2012 and a whopping 52% in the first quarter of 2011, big gains that outpaced most rivals.

But, so far this year, it has been a different story. The Korean twins' retail sales were down 9% in the first quarter of 2013 versus year-ago totals. That's a sobering decline that's due in part to ever-toughening competition for the maturing Korean brands.

The Hyundai boom has mostly faded
Hyundai and Kia were among the biggest beneficiaries of the troubles that plagued Toyota and Honda over the last few years. A recall scandal at Toyota in 2010 hurt the company's image with buyers here. Just as that problem began to fade, the March 2011 tsunami decimated key suppliers to both companies in northern Japan, leading to short supplies that put the brakes on U.S. sales for both - and those events led many longtime brand loyalists to give Hyundai's products a closer look.

Many of those customers liked what they saw. Hyundai, long known for cheap cars, has raised its game in recent years. Models like the Elantra compact and Sonata sedan have compared very well with their Japanese counterparts, while offering arguably better value for money.

Meanwhile, a big product overhaul at Kia produced a line of cars and SUVs with head-turning good looks inspired by sleek Aston Martins and other high-end auto icons. Those good looks drew curious buyers, who were, as with Hyundai, impressed with what they found.

Hyundai and Kia aren't the only automakers who made hay while the Japanese makers scrambled, of course. Ford saw big sales gains from impressed new customers as well, while General Motors' Chevy Cruze became America's best-selling compact car for a while.

But now Toyota and Honda have fully recovered. And while Ford and GM continue to make retail sales gains here in the U.S., Hyundai and Kia have slid. What's going on?

A capacity crunch amid tougher competition
Hyundai told Automotive News that part of the problem is simply one of manufacturing capacity: Like Ford's North American factories, Hyundai's plants are running flat-out. Making more cars and trucks isn't easy. That's great for the company's profits, but it makes increasing sales a complicated problem.

Hyundai is trying to manage its production to make more of the vehicles that are most in demand, but that necessarily means shortages of some models - and if buyers can't find the car they want to test-drive, they're likely to go buy something else instead. The company says that big increases in production capacity aren't in the cards, at least not any time soon.

But the other part of the problem for Hyundai and Kia is simply that the days of easy pickings have passed. Toyota and Honda are back at full strength, Ford continues to up its product game, and now GM is beginning to come on strong as well.

The competition will get even tighter soon. The recent devaluation of the yen will give the Japanese makers another advantage, while German auto giant Volkswagen is beginning a big push to increase its share of the U.S. market.

How will Hyundai and Kia cope? Good question. Stay tuned.

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