Hyundai's Withdrawal from Japan Reveals Its Weak Points

  • By Chosun Ilbo columnist Kim Ki-cheon

    November 30, 2009 10:51

    An early ad for the Lexus LS 400 showcased the smoothness of its V8 engine by stacking several champagne glasses on its hood while the engine was revved. There were no special effects in this stunning demonstration -- it was actual footage. Toyota was able to leap into the ranks of the world's luxury carmakers with the launch of its Lexus brand thanks in part to its technological lead over its rivals.

    But even Lexus suffered in its home market. The brand was launched first in the U.S. in 1989 but postponed in Japan until the summer of 2005 after it had solidified its reputation as a world-class luxury car. Toyota was able to sell only half of its target of 20,000 Lexus models in Japan that year and sales in 2006 totaled just 30,000 units, lagging behind Mercedes-Benz and BMW. Japanese consumers were slow to warm up to the brand, despite its global acclaim.

    Japan's automobile market is notoriously cut-throat. It is the third largest market in the world after China and the U.S., but imported cars account for only around 4 or 5 percent. That does not mean it is particularly comfortable for domestic carmakers either. As demonstrated by the Lexus example, even Toyota, which accounts for 45 percent of domestic auto sales, has a tough time meeting the expectations of demanding Japanese customers.

    Hyundai Motor has decided to pull out of the Japanese passenger car market by the end of this year. Since its launch in Japan in 2001, its sales peaked at 2,574 vehicles in 2004 and then began falling every year to 2,295 in 2005, 1,651 in 2006 and 1,223 in 2007. Sales for the first 10 months of the year totaled a paltry 764 units. Hyundai accounts for less than 1 percent of the some 200,000 foreign cars sold in Japan every year. The company went the extra mile to boost sales, even offering a 10-year, 100,000-km warranty, but to no avail.

    Hyundai foundered in Japan because it failed to satisfy consumers in terms of quality, price and technology. Another problem was its lack of subcompact models to appeal to drivers who prefer small vehicles to navigate Japan's many narrow streets, alleys and parking lots.

    While Japanese carmakers have suffered falling sales this year due to the strength of the yen amid the global financial crisis, Hyundai has managed to achieve record profits. Foreign news media reported that Japanese manufacturers are trembling in fear of Hyundai's growing strength. But its decision to pull out of Japan shows that Hyundai still has a long way to go before it can catch up with its Japanese rivals.

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