Fifteen years after Hyundai Auto Canada first brought Korean-made vehicles to Canada, two other Korean car makers are following suit: Daewoo Auto Canada and Kia Motors Canada are each gearing up to make inroads into the Canadian market.

Automotive industry analysts say Hyundai’s hard-fought campaign for consumer acceptance of Korean-made cars has helped pave the way for the two new brands, but that only innovative marketing efforts and competitive pricing strategies will keep them in the game.

Kia will open its doors with two models – the entry-level Sephia and the four-door Sportage – both of which are made in Korea.

Andrew Gray, assistant marketing manager for Kia Motors Canada, says plans are still being formulated for the fall launch of these year 2000 models, and he expects to hire an advertising agency from a shortlist of two by the end of this month.

(Goldberg Moser O’Neill of San Francisco is the agency used by Kia’s U.S. sister company.)

Canadian prices haven’t been firmed up, says Gray, but the Sephia, which ranges from just under US$10,000 to US$13,325 south of the border, is in the competitive class with the Hyundai Elantra, Toyota Corolla and Chrysler Neon.

The Sportage, which ranges from US$14,795 to US$18,595 depending on options, is a compact sports utility vehicle expected to go bumper to bumper with the Honda CRV and Toyota’s RAV4.

Although Kia’s parent company – Kia Motors Corp. of Seoul, South Korea – was recently purchased by Hyundai parent Hyundai Motor Co., Gray says both companies continue to operate autonomously, so not to expect dual Hyundai/Kia dealerships in Canada.

Kia has been operating in the U.S. since 1994 and now has 500 dealers across the country. In the U.S., the company puts most of its advertising budget into television and it has been steadily increasing its ad spending over the last few years. It spent US$39 million in 1997, US$33.1 million for the first half of 1998 alone and it just launched its 1999 Sportage with a US$10 million TV-only campaign.

For its part, Daewoo entered the U.S. marketplace last fall buttressed by some innovative marketing strategies – including direct selling through its Campus Advisory Program.

The company recruited 125 college and university students and sent them to Korea for a training course so they could promote sales of Daewoo cars on campus.

Its most recent innovation is selling cars over the Internet at www.daewoous.com.

A three-month test of the site is currently underway.

Ralph Luciw, communications manager for Daewoo Auto Canada, says the Canadian operation is positioning its Web site as a showroom only and has no plans as yet to bring in the same kind of marketing strategies as in the U.S.

Luciw says he expects to have 30 privately owned, franchised Daewoo dealerships up and running in Ontario and Quebec by the end of the summer.

The launch will be handled in stages, with Ontario and Quebec the focus this year, the Atlantic provinces and British Columbia on the agenda next year, and the prairies in year three.

Daewoo recently hired Toronto-based agency Goodgoll Curtis, and will be rolling out advertising in early March as Daewoo dealerships begin to open their doors.

Luciw says three Daewoo brands will be introduced this year: the subcompact Lanos, in three-door hatchback and four-door sedan models (from CDN$12,500); the compact Nubira in four-door sedan and station wagon editions (from CDN$12,250); and the intermediate four-door sedan Leganza (from CDN$20,000).

Next year, the company plans to introduce the Musso, a sports utility vehicle.

Daewoo and Kia are entering a marketplace which J.D. Power and Associates values at $48 billion for 1998, up from $44.7 billion in 1997. Of the total retail car market in Canada, $35.7 billion is attributable to household purchases and $12.3 billion to business or fleet vehicles.

The used-vehicle market in 1998 accounted for approximately 29% of the total household spending, a jump from 22% in 1993.

One positive sign for both Daewoo and Kia is that nearly one out of four vehicles on Canadian roads is compact, twice the proportion of the U.S.

Richard Cooper, an analyst at J.D. Power and Associates of Toronto, says neither Daewoo or Kia is bringing anything unique to the marketplace, so they’re going to have to differentiate themselves on the basis of price and perhaps service, if they’re going to thrive.

Competitive pricing is going to become more important in the automotive marketplace over the next few years, particularly for entry-grade cars, predicts Cooper, because global consolidation of major automakers will continue and the resulting cost efficiencies at the manufacturing level means car prices will likely decrease.

Because most car companies are already operating on tight profit margins, Cooper says some of the smaller players may not be able to sustain themselves.

J.D. Power and Associates projects that Daewoo and Kia will remain small for the next couple of years and won’t achieve Hyundai’s level of success for quite some time – if ever.

Because the Daewoo and Kia brands have no equity with consumers, Cooper says all things being equal, the consumer will likely choose a known competitor such as Honda, Toyota or Hyundai.

Both companies will also have to use the Internet as a communications medium, says Cooper, particularly if they’re to win over the younger demographic and the sports utility vehicle segment.

Sidebar: Globalization fuels auto expansion into new markets

The global trend toward consolidation within the automotive industry is going to continue says Peter Tyszewicz, auto industry analyst for Ernst & Young Canada, because automakers are intent on achieving economies of scale by increasing production volumes in new markets.

The merger earlier this year that resulted in DaimlerChrysler was followed by the recent merger of Ford, the number two automaker in the U.S. with Sweden-based Volvo.

DaimlerChrysler is reportedly also looking at Nissan of Japan for its stable.

The Big Three U.S. car companies already own or have minority shares in a number of European and Asian auto manufacturing firms and are said to be sniffing around Fiat of Italy, Honda of Japan and Hyundai of Korea.

Tyszewicz says the so-called ‘platform strategy’ – whereby the manufacturer develops one basic platform or backbone for a car that it then customizes for different markets – is advancing the trend toward globalization.

Tyszewicz says the GM Delta platform, which is being developed in North America, will eventually be sold on four continents in eight or nine countries.

‘The volume for that is going to be almost 1.3 million vehicles a year so they get a lot of economies of scale by designing one basic platform and manufacturing and marketing it around the world,’ he says.

While Daewoo and Kia each focus on export strategies, Tyszewicz says they also control their costs through production volumes with platform programs in Korea, as well as through extensive use of robotics throughout the assembly process.

While carmakers are focusing on new and emerging markets, Tyszewicz says they can’t lose sight of North America where between 15 and 16 million cars are sold each year. PS