Pity Detroit. If recent news reports are to be believed, "Motor City" may soon be more famous for producing bleached blond white rappers than muscle cars and pickup trucks.
According to a recent J.D. Power & Associates survey of new-car quality, American car makers now have a new low-priced, high-quality Korean rival to add to their list of expensive, high-quality Japanese nemeses in Toyota (NYSE: TM ) , Honda (NYSE: HMC ) , and Nissan (Nasdaq: NSANY ) . I refer, of course, to the surprise second-placer in J.D. Power's survey: Hyundai (which tied Honda for second and lost only to Toyota). The Korean automaker achieved its impressive numbers by slashing its average problems per 100 vehicles by nearly 30% in a single year. Since 1999, the company has improved its results by closer to 50%.
2004 is starting to look like the year in which Hyundai shakes off its image as a maker of shoddy, plastic econoboxes. Sunday's Washington Post, for example, profiled the company's new XG350L sedan as "An Accessible Taste of Luxury," ranking it on a par with Toyota's Avalon, Honda's Accord LX V6, and Volkswagen's Passat. Impressive company to keep, indeed.
Meanwhile, Detroit's Big Three, General Motors (NYSE: GM ) , Ford (NYSE: F ) , and DaimlerChrysler (NYSE: DCX ) , all lagged the industry average numbers for quality. (Two silver linings around this foreboding cloud: GM's Cadillac division and Ford's Jaguar division both performed admirably, coming in second and third in the division race after, you guessed it, Toyota's Lexus).
The only real caveat to Hyundai's results lies in the nature of the report itself. The J.D. Power new-car survey only reviews problems that surface within the first 90 days of ownership of a new vehicle. Still, Hyundai's vaunted 10-year limited warranty and the cost of honoring that pledge give the company a big incentive to ensure that the autos it produces remain relatively problem-free for much longer than 90 days.
If the company succeeds in building long-term reliability into its vehicles, then that, combined with the relative inexpensiveness of Hyundai's product line, may finally begin to win over U.S. car buyers to the brand en masse. Hyundai currently has only a 2.5% U.S. market share, so even if the company's U.S. sales should double, that would not hurt Detroit much. But Fools with a long-term investing horizon, would still do well to keep an eye on this new sun rising in the East.
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Fool contributor Rich Smith says: "C'mon Slim Shady. You know I'm just playin'." He owns no shares in any company mentioned in this article.