Hyundai: Too Far, Too Fast?
Korea's strong currency and costly moves to improve quality are making its cars pricier

Americans aren't ready to pay a premium for Hyundais, no matter how great the quality. In the U.S., Hyundai's entry-level Accent now costs some $600 more than the rival Toyota Yaris. And U.S. sales of the Sonata sedan, which Hyundai began building at a Montgomery (Ala.) plant last year, have been disappointing. That's in part because a Toyota Camry today runs only about $1,000 to $2,000 more than a Sonata with similar trim. Three years ago, the difference would have been twice that. "They should have priced the cars lower to give them an edge," says Michael Marceca, business manager at a Hyundai dealership in Manhattan.

Hyundai is paying the price for strategic missteps that date back nearly a decade. As the won lost half its value against the dollar in the 1997 currency crisis, it seized the chance to spend big on quality. But with the won now back to pre-crisis levels, it's clear the quality drive came at the expense of productivity. Rather than improving the way it makes cars to minimize defects à la Toyota Motor Corp., Hyundai stepped up inspections and testing. The result: It needs two-thirds more man-hours to build each car than Nissan and Toyota do.

Hyundai says it can compensate for the rising won. It expects to make half its cars overseas by 2010, up from 30% today, and is dispatching engineers to suppliers' factories to help develop less costly parts. But its Japanese rivals are no doubt relishing the chance to put a little extra distance between themselves and the fast-moving Koreans.