Overtaking Detroit

When Korean automaker Hyundai rolled out the Excel, its first U.S.-bound vehicle, in 1986, it sold for $4,995, roughly $1,500 to $2,000 lower than comparable autos on the road. Lured by its low price and the prospect of topnotch Asian quality, consumers bought 263,610 units during the first year alone. But problems quickly emerged—the cars began to fall apart, with trim and paint peeling off, and cosmetics were not the only issue. "I remember an Excel making a lane change and going up on three wheels," says Jonathan Linkov, editor of Consumer Reports' autos coverage. Hyundai's successful sales storyline was quickly rewritten, and the company became the punch line of the auto industry.

Sound familiar? It should. General Motors and Chrysler are finding themselves similarly derided as they climb out of bankruptcy. But there's nothing funny about the state of both companies. While GM plans to launch 11 new vehicles over the next two and a half years, it's been forced to shed three brands and shutter nearly 2,000 dealers. Chrysler, meanwhile, is saddled with the task of attracting consumers with a lineup that may largely be produced by its new and relatively unfamiliar European partner, Fiat.

But while Detroit's reputation and fortunes are in decline, Hyundai's have steadily climbed. Last month J.D. Power’s 2009 Initial Quality Study ranked Hyundai ahead of Honda and Toyota and just below pricey luxury brands like Lexus, Porsche, and Cadillac. Hyundai's market share is also up from 3 percent to 4 percent this year over last, a relatively significant jump at a time when industrywide sales have slumped.

So what is the Korean carmaker doing that most of Detroit isn't? It built a better car and slowly transformed its reputation from laughable to laudable. "In the early years, the quality wasn't there," admits John Krafcik, the CEO of Hyundai Motor America, who notes that the automaker committed to reinvesting heavily in its product line. "We [also] needed to show a commitment to the American car buyer that we were in great shape," says Krafcik. By 1998, the company adopted a 10-year, 100,000-mile powertrain warranty and a five-year, 60,000-mile vehicle warranty, which exceeded the 36,000-mile industry standard of the time.

It's helped too that while the CEOs of the Big Three flew private jets to their congressional bailout hearings, Hyundai was instituting an owner's assurance plan that allows the newly unemployed to return their cars. This year the company also launched a gas price protection plan that guarantees drivers $1.49 per gallon for a year.

David Sargent, vice president of automotive research and director of the J.D. Power Initial Quality Study, says that Hyundai's formula has worked, resulting in "a pretty quick and very significant climb in quality" over the past six years. "They're stretching their product line and competing in areas that 10 years ago would seem unlikely," he says.