Hyundai Delays Hybrids

Hyundai Delays Hybrid Program

In the past five years, Hyundai has fought a hard battle to improve the quality of its vehicles—which were once viewed as inferior budget constrained choices. It looks like the South Korean automaker has won. It is now consistently ranking near the top of quality surveys by consumers and auto industry market firms. According to BusinessWeek, Hyundai "has emerged as the fastest growing of the major automakers."

Fresh from showing it can make affordable cars without sacrificing quality, the carmaker is appeared to be ready to make hybrid technology affordable. Then, the company slammed on the brakes. Automotive News reported in May 2006 that Hyundai would delay introduction of hybrid cars until 2009 at the earliest. The article cited the rising value of South Korea’s currency—which means auto sales in the U.S. generate fewer won for Hyundai—and generally weak auto sales. And then there’s the turmoil at the top level of the company: the chairman of Hyundai Motor, Chung Mong Koo, was charged in May in South Korea with embezzling $136 million to create a political slush fund. The controversy, according to the New York Times, caused the company to delay important projects, including the development of Kia’s first American plant and the development of hybrid vehicles.

Rewind

In Dec. 2005 at the third Guangzhou international exhibition in China, Hyundai revealed a hybrid version of the sub-compact Accent. The automaker said the Accent Hybrid would combine a 1.4-liter continuously variable valve-timing engine, delivering 90 horsepower, with a 16-hp electric motor. Hyundai promised a 40 percent increase over the conventional Accent’s 32 mpg, and said the vehicle might be ready by the end of 2006.

News about a hybrid Accent follows a long string of announcements regarding hybrids. Hyundai has made it clear that it wants to introduce Korea’s first mass-produced car with a gas-electric hybrid system, as part of a plan to reduce the gap between front-runners in the hybrid car field.

In June 2004, Hyundai said it would invest 1 trillion won (869 million US dollars) to set up a production line that could produce 10,000 hybrid cars per year by 2009. Since then, Hyundai has apparently upped the ante further. An October 2004 Reuters story says that Hyundai will spend an additional $260 million in the coming years to build 300,000 units of hybrid vehicles. "Hyundai and affiliate Kia Motors would set up a production system to develop hybrid vehicles, a segment that would become the next-generation growth engine," said Chairman Chung Mong Koo.

Hyundai's FGV-1 Hybrid SUV
The FGV-1 hybrid SUV reflects Hyundai’s commitment to creating the next generation of low-pollution vehicles.

The company’s interest in hybrids actually dates all the way back to the 1995 Seoul Motor Show, when it introduced a concept hybrid model, FGV-1, followed by the FGV-2, Verna and Avante hybrid models. To date, Hyundai has spent $87 million to develop gasoline-electric cars.

A Change of Plans

Hyundai had been checking off one milestone after the next in its march to the U.S. hybrid market. It didn’t hurt that the Korean government planned to invest hundreds of millions of dollars over the next five years to help develop technologies needed for hybrid, fuel cell vehicle and other advanced automotive systems. The government was scheduled to take delivery of 380 Hyundai Accent and Kia Rio hybrids this year, and is working on an attractive domestic hybrid incentive package—tax breaks, subsidies, bus-lane usage—for 2010.

How did Hyundai manage to get so much assistance from the Korean government? The slush fund controversy provides clues. Two steps forward and one big step back: the scandal has apparently delayed Hyundai’s hybrid plans.