The weak won and strong yen are giving Korean company Kia Motors a chance to increase its market share as other groups struggle to emerge from the crisis. One of its strategies: a lightning attack by sports marketing.
If Rafael Nadal brought Roger Federer to tears by winning the Australian Open tennis tournament on February 1, the executives of Kia Motors Group, whose headquarters are based in Seoul, could not have been more happy. It’s been two and a half years since Nadal, the king of the French Open and the Wimbledon tournament, signed a sponsorship deal with the Korean car manufacturer, and his victory marked the apotheosis of aggressive publicity of the group during the two weeks of tournament in Melbourne. Spectators watching the game from the Rod Laver Arena or the following one on television could not escape the oblong Kia Motors logo plastered throughout the stadium.
Tennis played at the Australian Open is one of many sports sponsored by Korea’s second largest car manufacturer. “Sponsorship of sporting events will occupy an important place this year in our marketing counterattack,” says Lee Soon Nam, the South Korean company’s overseas marketing director. Even as many sporting events face problems as struggling banks and corporate sponsors cut spending, Kia Motors is not shy about spending millions of dollars on sports marketing this year. Sporting events sponsored by Kia Motors include the National Basketball Association (NBA), the FIFA World Cup, and the Pan-Asian Games.
At the same time, Kia’s sister company, Hyundai, did its own sports betting by airing high-profile Super Bowl ads. Two weeks before the Feb. 1 game between the Arizona Cardinals and the Pittsburgh Steelers, Hyundai purchased $3 million worth of commercials that aired during the pre-game show. These advertisements are in addition to the two others that the company had already purchased during the championship to promote its brand, in particular by extolling the merits of its Genesis sedan, which is worth $32,000 and which won the North-American Car of the Year Award last month.
While other auto groups like GM struggle to survive, executives at Kia Motors, which is 39% owned by Hyundai, are optimistic about their chances of succeeding in 2009. “The current economic crisis is an opportunity for us to expand our presence, and it only happens once a century, says Lee. This year, our group will focus on increasing its market share. » Kia Motors, whose market shares are 2.1% in the United States, 1.7% in Europe and 2.5% in China, as well as 27.3% in Korea, is the star of the companies listed on the Seoul Stock Exchange: its stock has climbed 21% this year so far, while the benchmark, the Kospi, has gained only 2%.
THE CURRENCY ADVANTAGE
Why is the automotive group adopting such a positive attitude despite the worst economic decline in many decades? Like other major Korean exporters, Kia Motors has a lethal weapon: the country’s weak currency. The Korean won lost almost 26% of its value against the dollar in 2008 (this rate being a comparison with that of the end of 2007), thus helping Kia Motors, whose annual operating profit amounted to $224 million, significantly offsetting its loss of $40 million that the group suffered in 2007. The company’s revenues increased by 2.7% in 2008, reaching $11.9 billion.
This weapon becomes even more formidable when one takes into account the impact of a strong yen, which plunges even the powerful group Toyota (TM) into the deficit. In contrast to the won’s sharp fall, the yen climbed some 24% against the dollar last year. “Japanese automakers are the main competitors of Korean companies, and the reversal in the trend in exchange rates has made all the difference,” said Suh Sung Moon, auto analyst for brokerage Korea Investment & Securities.
Of course, Kia Motors is not immune to the astonishing contraction of the automotive industry, since the group also suffers from a huge excess of capacity. The company is currently cutting production by 24% for the first quarter of this year at its Korean factories, where three-quarters of the 1.4 million of its vehicles sold worldwide last year were made. Sales of its automobiles in the United States fell 10.5% to 273,000 vehicles sold in 2008, although the fall was less compared to the auto industry’s 18% decline in the market .
In addition, the global credit crunch may push Kia Motors to increase its financial capabilities. Kia, which has established factories in Slovakia and China in just two years, is taking the initiative by planning to open a new factory in the United States, which will be located in West Point, Georgia, towards the end of the year. Measures such as these adopted by Kia Motors caused it to significantly increase its debt (here we are talking about its debt minus its equity holdings) by approximately $1 billion, raising its debt to $3.3 billion. dollars in 2008. “Kia Motors officials will certainly face a more hostile economic environment this year,
Yet, as the auto industry prepares for an even worse 2009 than last, Kia Motors officials remain determined thanks to the currency mismatch. In Seoul, business analysts expect the won to lose another 10% of its value against the dollar this year. This forecast inflates the revenues and earnings generated abroad (only 23% of its sales come from Korea) when converted into local currency, thus leaving much more room for the group’s spending on marketing. “It’s a luxury that most global automakers, especially the Japanese ones, can’t afford,” Suh said.
A NEW LOOK
Kia Motors’ hopes are also pinned on increasing its market share through the design of several new vehicles. In overseas markets, the company is introducing four new cars, including its Forte sedan (also called the new Spectra in the US) and its Soul city SUV, which helped Kia Motors increase domestic sales by 16% last year, when demand in the Korean auto industry fell 5.3%. Two other models launched by Kia Motors in Korea and overseas include a small sports coupe and a new SUV. Michael Choo, spokesman for Kia, said his company has set itself the goal of capturing a 35% market share domestically this year, which would allow it to exceed its share of 27.3% won in 2008 and that of 22.
This objective, ambitious in times of crisis, is largely the result of the new strategy adopted by Kia, which highlights the unique design of its cars. The Soul and Forte reflect the European elegance injected into them by chief industrial designer Peter Schreyer, the German car design star whom Kia Motors hired in 2006, and who formerly worked for Volkswagen (VOWG.DE). After serving with Kia Motors for two and a half years, Schreyer, who designed the look of the iconic TT convertible and a classic model, the 1997 Audi A6 sedan, during his service years for the Audi Group from 1994 in 2002, begins to release a new line of vehicles intended, according to the executives of the Kia Motors company, to give the latter a characteristic and recognizable face.
So, even as the Korean currency gives it some leeway, it’s no wonder Kia Motors is stepping up its marketing campaign. Although the company refuses to announce how much it spends on promoting its brand, marketing manager Lee says the company will increase its spending by single digits, with the spending running into the hundreds of dollars. millions of dollars. Lee adds: “As our rival groups are weakening, it is high time that we forge ahead by attracting more and more efficient traders, and that we seek to build greater brand awareness. »