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Will Hyundai Lose on Quality Woes?

By John Rosevear - Apr 11, 2013 at 3:00PM

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A big safety recall has led experts to ask: Did Korean auto giant Hyundai expand too quickly?

Korean auto giant Hyundai (HYMTF -2.82%) and its corporate cousin Kia (NASDAQOTH: KIMTF), which said  Wednesday that they would jointly recall over 1.8 million vehicles in the U.S. to fix a faulty brake-light switch, now say they will expand the recall globally.

It's a necessary move: Any failure involving brake lights could obviously lead to accidents. But the recall, which is Hyundai's largest ever in the U.S., has raised concerns that the company's quality may have been sacrificed for quantity during the company's rapid global expansion.

Did Hyundai expand too rapidly?
A Reuters report on Thursday cited a number of well-placed sources calling Hyundai's quality control into question. They aren't the only ones: While Consumer Reports still rates the company's bread-and-butter Elantra and Sonata models as average or better for reliability, the company fell to 18th (from 11th) in a key J.D. Power quality survey last year.

It wasn't that long ago that Hyundai's quality was seen as being roughly on par with the Japanese leaders. So what happened? A J.D. Power official told Reuters that part of the problem may have been Hyundai's rapid expansion into new product segments – some of its newer models haven't performed as well as mainstays like the Sonata, he said.

That's a theme we've heard before from other companies – including the company often seen as the global paragon of new-car quality, Toyota (TM 0.27%).

Remember Toyota's troubles? I bet Hyundai does.
"We pursued growth over the speed at which we were able to develop our people and our organization," said Toyota CEO Akio Toyoda in 2010 to the U.S. House of Representatives about his company's recall scandals.

They've faded a bit in the rearview mirror now, but in late 2009 and 2010, Toyota was wracked by a series of massive recalls – recalls that the company initially handled quite badly. After months of denials, executive hubris, and generally unsympathetic corporate behavior, CEO Toyoda took charge, made appropriately contrite statements, and promised to set things straight.

And he followed through.

Toyota has since recovered nicely. It was the largest-selling automaker in the world last year, and one of the most profitable. Obviously, Hyundai's problems at the moment aren't anything like Toyota's – it's just a recall, albeit a big, eyebrow-raising one.

And the company is saying the right things. An unnamed Hyundai executive told Reuters that last year's decline in quality rankings got the company's attention, and its internal problems have been addressed.

Let's hope that's true. Because Hyundai's story has been a pretty good one so far.

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Hyundai Motor Company Stock Quote
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