Seoul Man: A Memoir of Cars, Culture, Crisis, and Unexpected Hilarity Inside a Korean Corporate Titan (38 page)

The birth of the microbreweries—sweet relief to long-suffering Korean beer drinkers—was emblematic of how much had changed while I was in Korea and how much is still changing. I came to understand—and appreciate—that I had lived in Korea during one of the young nation’s true pivot points.

On the first day we were in Korea, our Foreign Service sponsors told us that Korea is the land of “almost, not quite.” I took that to mean it’s almost, not quite like the U.S. and that Amer
ican standards of comfort, quality, and convenience were not to be found. I laughed about it, admittedly a little smugly. This was the natural if unfortunate reaction of a West Virginia provincial tossed into the deep end of internationalism, thrashing about for anything to keep his head above water.

But the longer I stayed in Korea—and after I left—I came to realize that “almost, not quite” really meant that Korea and Hyundai were almost but not quite the next things they were about to become. For all the daily frustration to be felt as the only American in a foreign corporation, for all the hardships we endured as a family, it turned out to be a privilege to watch this country and this company transform into their next incarnations—to work through their midlife crises before my eyes.

As I write this, in late 2015, change continues in the lives of Hyundai, Korea, and myself. We are all different entities today than when we first intersected in 2010. Each of us has tallied the early results of our urgent and labored efforts to evolve. Each of us stands at the brink of something new, perhaps something great.

HYUNDAI: A BUMPY ROAD BUT POINTED UP

After Hyundai opened its Brazil and China factories in 2012, the company said it would take a break from its rapid expansion of the previous few years and renew efforts to maintain and improve its high quality. This was Chairman Chung’s decision, and although there was some whispered internal dissent, what the chairman said went, as usual. Hyundai never directly expressed it, but we—and many in the industry—believed that Toyota’s terrible quality problems that led to the unintended acceleration, massive recalls, terrible PR, and billion-dollar fine were at least partly caused by the company building too many factories too quickly. It is hard to keep a lid on quality
across a global network when you’re putting up factories fast in a bid to remain the world’s top-selling brand. That’s part of the reason why we always said that Hyundai’s goal was never to be the world’s biggest-selling brand; instead, we wanted to be the most-loved car brand, even though that might sound cheesy to some hard-bitten Western journalists.

The chairman’s reticence about continuing rapid expansion was certainly understandable, given how jealously Hyundai guarded its hard-won quality gains. But Hyundai’s competitors did not stop expanding, so Hyundai lost market share in some regions, including in the U.S. This spawned a spate of what’s-wrong-with-Hyundai stories that dulled some of the media shimmer we had enjoyed in previous years.

The bigger problem was SUVs. When Hyundai introduced its Fluidic Sculpture Sonata in 2011, the midsize family sedan was the hottest segment in the industry. The Sonata was a beautiful design, to be sure, but it hit at the right time and rode the wave up. By 2014, with gas prices plummeting on falling global oil production costs, consumer tastes were swinging away from midsize sedans and toward SUVs of all sizes. Hyundai had built a sedan-heavy lineup and was caught flat-footed by the consumer sentiment shift. When Hyundai introduced its new Santa Fe in 2012, it came in two versions: one with two rows of seats and one with three rows. This allowed Hyundai to scrap its poor-selling big SUV, the Veracruz. But this left Hyundai with only two SUVs in its entire U.S. lineup, the Santa Fe and an aging Tucson, introduced in 2010. By comparison, Nissan had six SUVs and Chevrolet had five. Even Mercedes had five.

Then there was the new Sonata with the more conservative design. It has sold well enough, but not as well as the previous, sexier version. Part of the problem was the segment decline: even the Toyota Camry, America’s best-selling car, saw a sales drop
from 2014 to 2015 as consumers moved away from sedans and toward SUVs. But the new Sonata’s slump was worse. It’s always hard to pin down one sure reason why a car succeeds or fails, but the reviews of the new Sonata were pretty consistent: this is a terrific car to drive and own, it’s packed full of features, it’s better than the previous one—but it will absolutely not stand out from the pack. There was a feeling that some of the previous Sonata’s design magic—that alchemic combination of lines and surfaces—had been lost.

These were Hyundai’s vehicle problems. But the company suffered a big corporate black eye in 2014 as well. Hyundai announced it was spending
$10 billion
to buy a piece of land in Seoul’s trendy Gangnam district to build a new hundred-story corporate headquarters. Not only was the sale price high, it was three times the land’s appraised value, so badly did Hyundai want the plot. What’s more, it was revealed, Hyundai had asked its board of directors to approve the purchase without telling them the purchase price. They complied, confirming the worst impressions of the powerful, chairmen-ruled
chaebol
and their puppet boards.

By the end of 2015, though, it looked like Hyundai was getting back on track. The chairman finally relented and Kia announced it would build a factory in Mexico, which likely will also produce Hyundai vehicles. I would not be surprised to see Hyundai build a second plant in the U.S., probably near its Alabama factory. Hyundai introduced a new Tucson that got good reviews and scored top safety marks. Hyundai promised a fun little SUV to compete with Nissan’s funky Juke, and hinted at a Genesis luxury SUV to compete directly with Audi and Mercedes SUVs. But these will likely be at least a couple years out.

The new Genesis sedan—the flagship vehicle of Hyundai’s grand ambition to raise its brand to German-level premium
status—turned out to be a home run. Through 2015 it continued to outsell its predecessor. By this time every publication had a chance to test drive the new Genesis, compare it to its rivals, and conduct long-term testing. These reviews were even more favorable than the ones we’d gotten from the first journalists we’d brought to Korea to drive Genesis back in 2013.

AutoGuide.com pitted the new Genesis against the Jaguar XF—and judged Genesis the superior vehicle. The Car Connection called it a “legitimate alternative to the heavyweights,” meaning the German rivals for which it gunned.

MotorWeek
wrote that Genesis “has the potential of being a brand-changing vehicle, if they can follow up with additional models in the same vein.”

In November 2015, Hyundai announced plans to do just that, but under a new, separate Genesis luxury brand. This surprised the auto industry—and me. Hyundai was creating its own Lexus.

I spent more than three years telling reporters the one thing Hyundai did
not
want to do was create its own Lexus-like luxury brand. Instead, we wanted to raise the entire brand to premium status, something that had never been tried before. Now, had all that been rendered meaningless? And what would this mean for Hyundai? Would Hyundai forever be consigned to the “value for money” category, with no hope to climb to premium?

But after talking to some people at Hyundai, I was reminded of what we told reporters who asked if we planned to create a luxury brand: “We don’t, but the customers will ultimately decide for us.”

They did. The Genesis always wore a Hyundai H logo on the trunk and a special winged Genesis logo on the hood. In the years following its introduction in the U.S., many Genesis owners would ask their Hyundai dealer to remove the Hyundai H from the trunk and replace it with a winged logo.

By the time the second-generation Genesis came out, the H had all but disappeared from the car. The critical reception and strong sales for the new Genesis convinced Hyundai that the Genesis name could carry its own lineup of six luxury vehicles. The new Genesis would be renamed G80. The next Equus would be renamed G90. The Genesis brand would include a luxury SUV, a small sedan aimed directly at the BMW 3 Series and other vehicles, all carrying the “G” alphanumeric naming and all on the road by 2020.

Markets and consumer preferences change. Only foolish, hidebound companies do not change with them. An improved economy and cheap gas drives the desire for luxury cars in the U.S. Hyundai believed elevating the entire brand was the right strategy for 2011. Splitting off a Genesis luxury brand is the right strategy for 2015 and beyond. Characteristically, Hyundai will go its own way even with its new luxury brand. Unlike its Japanese rivals, Hyundai will save money—and increase profit margin—by not setting up new dealerships for its Genesis models, at least not at first. Instead, it will continue to sell the Genesis models out of Hyundai dealerships and offer its luxury customers special treatment designed to save their time, believing that’s what wealthy luxury car buyers really value, rather than fancy dealerships with marble floors.

I don’t believe Hyundai will give up attempting to elevate the Hyundai brand, either. In late 2015, Hyundai showed its new Elantra, the successor to the top-selling version that won the Car of the Year award in Detroit in 2012. Not only does the new Elantra have a completely remade exterior design that critics termed upscale, and that mimics some of the Genesis’s best styling moves, but Hyundai also packed the new Elantra with features found on the Genesis and other luxury cars.

To compete with high-performance luxe cars, Hyundai estab
lished an “N” sub-brand for souped-up versions of its cars, like the Mercedes AMG performance brand. Hyundai announced its intentions powerfully by building a testing facility at Germany’s fabled Nürburgring racetrack. It is a gleaming structure with a mirrored surface that reflects sunlight like a beacon, an impossible-to-miss metaphor for Hyundai’s ambitions.

With the new headquarters, Hyundai learned a tough corporate lesson. After the outcry from foreign shareholders who felt they had been kept in the dark about what the company was doing with their money, Hyundai established its first—and Korea’s first—board-level committee designed to protect the interests of non-family shareholders. This seems like an obvious, long-overdue step to appeal to Western investors, but for Korea it marked a huge cultural shift. In the past, in Korea’s Confucian hierarchy, a
chaebol
chairman answered to no one, and it was almost considered a privilege to invest in his company. That is changing, one more sign of how Korea will continue to adapt to global norms while retaining its character: the company is, after all, still going to build its headquarters. Hyundai insiders might have been surprised by the caustic outside reaction, even from Koreans, to the expensive land purchase. Inside Hyundai, it probably made perfect sense: Hyundai, playing the long game as usual, sees its new building as a hundred-year headquarters, a way to get all of its affiliates under one roof, a showcase for its new premium vehicles, and a landmark anchor for the next phase of Seoul’s growth. If this had been communicated well to major shareholders in advance, if they had been told that the Korean government was promising to punish the
chaebol
unless they spent some of their massive cash reserves—if it had been accompanied by a shareholder dividend and if the biggest shareholders had been enfranchised in the decision—it all might have gone a lot more smoothly for Hyundai. The black eye was not a failure of
strategy or vision; it was a failure of communication, with shareholders and with the media.

This is one of the things I hope and believe will change when Vice Chairman Chung Eui-sun—son of the current chairman, grandson of Hyundai’s founder, and the man who hired me—takes over the company. This may happen before this book is published; it may happen five years or more from now. Vice Chairman Chung is decisive—that is demonstrated by Hyundai’s design direction—but I believe he is more collaborative, egalitarian, communicative, and perhaps even revolutionary than his father. The last trait is critical. In order to execute Hyundai’s audacious plan to build premium cars, it needs to recapture some of the bold risk-taking spirit of Hyundai founder Chung Ju-yung, who sold his first ship before he had even built a shipyard. When you have suffered the privation that Korea only recently experienced, it is understandable to avoid risk, play it cautious, and hold on to what you’ve got. But that is a path toward stagnation, not innovation and leadership. I’m excited to see risky new product like the Genesis luxury brand. I’d like to see Hyundai distribute that feeling of adventure across the company: hiring more people from outside Hyundai, promoting more women to executive roles, getting more foreigners at headquarters, helping Hyundai’s non-Korean employees outside of Korea—especially the managers—feel more enfranchised in the company and given more authority. In a 2014 interview with Bloomberg Business, Choi Myoung-wha—Hyundai’s first female vice president—hinted at the changes that need to come in Korea’s Confucian corporate culture when she told younger female colleagues, “Your manager is your boss, not your father.” It takes more than good design to make a brand premium. It takes corporate culture change as well.

Can Hyundai become a maker of premium automobiles, someday the peer of the world’s best cars? In the long game, I
believe it can, but it will be under the chairmanship of Chung Eui-sun.

KOREA: CHANGE EVERYTHING

When Eduardo, my right-hand man at Hyundai, left the company, he wasn’t sure what he wanted to do. Within a few months he figured it out: Instead of devoting his life to a
chaebol
, Eduardo wanted to be a hotelier. With some backing, Eduardo opened a modern, twelve-unit boutique hotel on the vacation island of Jeju, off the southern coast of the Korean Peninsula. The hotel is already a success and he has plans for another. With this decision, Eduardo transformed himself into the very thing that Korea needs to achieve the next chapter in its historic growth story: a risk-taking entrepreneur in the service sector. The best part, at least as Eduardo sees it, is that now he’s the boss. And as the boss in a Confucian workplace, he gets to assign English names to his Korean workers, just as his team leader had given him an English name back at Hyundai. Eduardo named one of his employees “Frank” and had a great time yelling at him when he screwed up. “Every time I see him,” Eduardo wrote to me, “I miss you a lot.”