Localization strategies distinguish Hyundai Motor Group, Toyota in China

The Mufasa [Photo provided by Beijing Hyundai Motor]

The Chinese market is a sore spot for South Korea’s largest automotive giant Hyundai Motor Group. Its sales performance in China, the world’s largest automobile market, once reached twice that of Japan’s Toyota Motor Corp., but it shrank to about 20 percent compared with Toyota last year. The biggest factor that distinguished the two companies in China is considered to be Toyota’s thorough localization strategy.

According to automotive market research firm MarkLines Co. on Tuesday, Hyundai Motor Group sold 381,110 passenger vehicles in China last year based on local factory shipments. During the same period, Toyota sold 1,839,575 units, 4.8 times more than Hyundai Motor Group.

Hyundai Motor Group outperformed Toyota in the Chinese market for nine years between 2009 and 2017. In 2014, Hyundai Motor Group sold about 1.76 million units in China, about 85 percent more than Toyota’s 950,000 units. However, after reaching a peak of about 1.79 million units in 2016, Hyundai Motor Group‘s business in China went downhill.

The only time when Toyota’s performance in China declined in the past 14 years was in 2012. When the Chinese and Japanese governments were in conflict over the Senkaku Islands (known as the Diaoyu Islands in China), Toyota’s local sales volume declined by about 7 percent to around 740,000 units in 2012 from around 800,000 units in 2011. As sales of Japanese brands, including Toyota, declined, Hyundai Motor Group absorbed the demand and increased its sales performance. The company increased its annual production capacity to 2.7 million units in 2018 in anticipation of future demand.

In 2012, Toyota began revitalizing its Chinese business. Instead of importing and selling older models from Japan, the company introduced a number of new vehicles tailored to Chinese consumer tastes. After establishing a solid demand base, it increased production capacity.

On the other hand, Hyundai Motor Group began to see a decline in sales in 2017 due to China’s retaliatory measures against the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile defense system in South Korea. With overcapacity and declining sales, Hyundai Motor Group faced increased cost burdens. To boost demand in China, the company responded with discounted sales. The prices of used cars of Hyundai Motor Co. and Kia Corp. went down and the brand image deteriorated.

Hyundai Motor Group also introduced models aimed at the Chinese market, but the results were dismal. In 2018, then-Vice Chairman Euisun Chung personally introduced the Encino (Korean name Kona) to the Chinese market, but its sales plummeted by 91 percent to 611 units in 2021 from 6,593 units in 2018 before being discontinued.

Hyundai Motor Group is belatedly revamping its brand image in China. Hyundai’s Chinese subsidiary, Beijing Hyundai Motor Co., launched the Mufasa, a mid-sized sport utility vehicle (SUV), in mid-June. The Mufasa has received favorable reviews for its advanced level of safety and convenience features compared to vehicles of the same class.

In the first five months of this year, Hyundai Motor Group’s local production and sales volume in China reached 142,048 units, an increase of 12.9% in the past year. Toyota, on the other hand, decreased by 4.9 percent to 652,663 units.