One For The Road

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It should be easy enough for Cho to recognize the secret of Hyundai's success. The South Korean company is following much the same formula that Toyota used decades ago to overcome its "cheap Asian import" stigma and become one of the world's most respected brands. When Hyundai first entered the U.S. market in 1986, its Excel sedan — an econobox with a $4,995 price tag — was an instant hit with frugal buyers. But customers soon discovered they were getting what they paid for: Excels were prone to quality-control problems and frequently needed parts replaced. Sales tanked, and Hyundai became a laughingstock. In 1998, Late Show TV host David Letterman listed his "Top 10 Hilarious Mischief Night Pranks to Play in Space"; No. 8 read: "Paste a 'Hyundai' logo on the main control panel." Says Brandon Yea, director of Hyundai's marketing-strategy team: "The Hyundai brand was worse than nothing."

But like Toyota, which overcame consumer prejudice in part by inventing kaizen, a manufacturing process and corporate mantra translated as "continuous improvement," Hyundai has rapidly built up regard for its products through an almost fanatical attention to Getting It Right. Consumer Reports magazine recently named the Sonata the most reliable car in the U.S. And Hyundai placed a solid third among nonluxury brands in J.D. Power and Associates' 2005 survey of initial-car quality, beating out Honda. Six years ago, Hyundai ranked among the worst in terms of initial defects. The comeback "is astounding," says Chance Parker, executive director at J.D. Power in Westlake Village, California. "We really haven't documented that level of turnaround in that period of time."

The architect of Hyundai's rise is Chung, who was named chairman in 1998. Although his father, Chung Ju Yung, founded Hyundai Motor in 1967, it was clear the son would not get a free ride. Shortly before his appointment, the Korean economy had been slammed by the 1997 Asian financial crisis and Hyundai was forced to lay off 25% of its staff. Complicating matters, Hyundai agreed in 1998 to acquire South Korean rival Kia Motors, which had to be assimilated. Chung had little experience with the automotive industry — he had spent most of his career managing a smorgasbord of affiliates in the Hyundai conglomerate, including a steel company, a pipemaker, a shipping-container manufacturer, and Hyundai Motor's service business. When Chung began broadcasting his intention to turn Hyundai into a top-five automaker, few outside the company took him seriously. Hyundai was ultra-hierarchical and slow to change. Managers rarely cooperated with one another and division chiefs ran their operations as personal fiefdoms. "When a problem occurred, each division would blame other divisions," says Lee Hyun Soon, a senior executive in research and development.

But Chung was quietly engineering a revolution. Revered by the staff as a member of the founding clan, he was able to gather information quickly and impose his will on the organization. After years managing the after-sales service operation, he concluded that quality problems were the crux of the company's ills. Suh Byung Kee, Hyundai's president, recalls Chung bursting into his office five years ago and saying: "Quality is crucial to our survival. We have to get it right no matter what the cost!"

Though Chung's revelation might seem obvious, it wasn't to Hyundai's staff. A premium had always been placed on making cars quickly and cheaply. Even Suh, who is in charge of Hyundai's quality-improvement efforts, admits, "When I first came to Hyundai, I too didn't think quality cars were important." But the new chairman made blemish-free manufacturing the top priority. To break down interdivisional barriers, Chung forced designers, engineers and factory managers to work as a team by creating joint committees to examine blueprints of new models. Twice a month, Chung summons senior managers into a conference room at his Seoul headquarters to analyze reliability issues, sometimes bringing in a whole car and lifting it up on a hydraulic platform to get a firsthand look. Likewise, the company's 68,000 workers are encouraged to make suggestions for improving quality. Late last year, Yu Seung Byul, a quality inspector on the assembly line in Hyundai's Asan factory in Korea, invented an improved method for detecting missing bolts and brackets in hard-to-see nooks inside the car frame. He and his managers spent weeks debating how to solve the problem, with no results. Then, says Yu, "I woke up one morning, looked in the bathroom mirror, and realized 'That's it!'" He simply installed a row of mirrors above part of the assembly line to gain a better view of the car's innards.