Hyundai's CEO on Opportunities of the Recession

The Great Recession has created huge challenges for the auto industry—but in tough times Hyundai has found opportunity. It was one of the rare carmakers to increase U.S. sales in 2009. As part of NEWSWEEK’s partnership with Kaplan University, NEWSWEEK Chairman Richard M. Smith spoke with Hyundai USA chief executive John Krafcik, an MIT graduate who worked for a GM-Toyota joint venture and Ford before joining Hyundai in 2004. Edited excerpts:

Tell me about your best boss and what you learned from him or her.

My first boss in the automotive industry was a Japanese fellow, a Toyota manager sent to the GM-Toyota joint venture where I first worked. As a first assignment he sent me to the Oklahoma City plant that made General Motors’ midsize cars—I think it was the Chevrolet Celebrity. I had never been to a car plant before, but it struck me as not good that there were workers sleeping in the big stack of compressed-cardboard boxes during the shift. And that cars were going off the assembly line with parts missing. Then he sent me to Toyota’s best plant, which made the Corolla. This was 1984. The differences were incredible. There wasn’t inventory stacked to the ceiling like at the GM plant. You could see the famous pull cord where any Toyota worker could stop the line. The work pace was energetic but reasonable—and I saw no one sleeping. I couldn’t believe the gulf between these two approaches to building cars. It made lightbulbs go off all over, and that’s [fueled] everything I’ve done in my career.

How do you identify, motivate, and prepare people for the next level of responsibility?

When we recruit and think about promoting people, one of the first things we look for is their comfort with this really important philosophy at Hyundai, which is: “Never set a target you know how to hit.” You don’t want someone who is comfortable with the status quo. We want people who are pushing.

How did Hyundai decide to implement its 10-year warranty?

It was a bet-the-company decision that was made about five years before I came here. After the horrible quality experience that many people had with Hyundai in the late 1980s and early 1990s, the company worked very hard to improve quality. By the late 1990s we were seeing indications that the quality was really much better than the perception. So there was permission to take a bold step like this. What it required us to do was reengineer the whole R&D process and essentially “design to failure.” For example, right now every Hyundai engine goes full-throttle red-line for 300 hours on a test stand. It’s a crazy test—most customers would never get close to that level of abuse. But it’s one of the reasons our vehicles are so bulletproof.

During the recession you promised to take back cars from buyers who lost their job during the first year of ownership. How do you come up with a plan like that?

In the fourth quarter of 2008, the U.S. economy was crumbling. Every manufacturer, including Hyundai, was upping incentives, and people weren’t buying. We didn’t understand it because the cars were great, the deals were fantastic—there really should have been more demand. Our insight came from listening to consumers and asking simple questions in focus groups. What we heard consistently was, “I know the deals are good, but I’m worried that if I lose my job then I’ll lose the car and I’ll have a bad credit rating.” It was a very simple step from hearing that insight to finding a solution. Within 37 days, we were able to put the job-loss vehicle-return program together and have ads on television.

You’ve said Americans would rather go to the dentist than visit a car dealer. Why is that?

It’s not a Hyundai problem, it’s an industry problem. American automotive dealers are incredible entrepreneurs, and 50 or 60 percent of them really understand what they need to do to deliver a great experience for the customer. But a substantial portion of them haven’t figured it out yet. We get letters from people who feel they were taken advantage of during the sales process. It doesn’t happen as much as it used to, but it’s still out there in dealers and brands across the country. What we need to get is a more enlightened retail experience for our customers. The good dealers understand that.

Could what’s happened to Toyota recently happen to any auto company?

Nobody really knows what the root cause of Toyota’s issue is. From a process point of view, I’d like to believe that we’ve got a different system that would be robust enough to [prevent] those kinds of issues, but honestly, who knows? The key for us is to stay hungry and stay humble. It’s how I sign off every e-mail to my team.