Ask The Best And Brightest: Could Kia Disappear?

24/7 Wall Street seems to believe that Hyundai’s junior brand could go away in the next year and a half, as it named Kia to its “Ten Brands That Will Disappear in 2011” list. This despite the fact that Kia’s first-half sales were up 15 percent over the first half of 2009, and Kia’s rolling 12-month sales are over 22 percent higher than its performance in the previous 12 months. So, why does 24/7 Wall Street see Kia disappearing?

Kia Motors Corporation is one of the two car brands of Hyundai of South Korea. It has always been a marginal brand. Its stable mate, Hyundai USA, has a reputation for high quality cars like the Sonata and Genesis. Kia sells “low rent” cars and SUV nameplates like the Sorento and Rio. As GM and Ford have already discovered, it is expensive to maintain multiple brands and storied car names, including Pontiac, Saturn, and Mercury, are disappearing. Most Kia cars sell for $14,000 to $25,000. Hyundai has several cars in the same price range. Hyundai’s Sonata has quickly become one of the best-selling cars in America, and its Genesis flagship model competes with mid-sized BMWs and Mercedes. The parent company will take a page from several other global car companies and dump its weakest brand.

This is something of an increasingly legitimate point. With Kias now being styled by former Audi man Peter Schreyer, Hyundai’s budget brand is slowly moving to a more upmarket positioning, even as Hyundai itself moves upmarket with its Genesis and Equus luxury sedans. Hyundai’s Elantra and Kia’s Forte, for example, fight for the same C-segment customers, with only about $400 separating their base prices. Only $1,000 separates the Optima from the new Sonata, and with a new highly-touted Optima replacement due this year, that price difference could shrink further still.

And there’s more: just about a week ago, the Korea Times noted that even Hyundai is starting to acknowledge that Kia and Hyundai cannibalize each other. With Kia’s South Korean-market volumes approaching those of Hyundai, and with the junior brand receiving more media campaign attention from its corporate overlords, there’s talk of actually reducing cooperation between the two brands. According to the KT

Now, Chung Eui-sun, Hyundai vice chairman and the only son of Chairman Chung Mong-koo, has reportedly talked about the reduction of support for Kia. Hyundai has shared car platforms and served as an app store of sorts for Kia. The junior Chung’s remarks are interpreted as a show of frustration by Chung, who is not comfortable with Kia’s success.

Even official Hyundai spokesfolks admit that

I know that Kia is doing well and we are happy. But Hyundai is not doing well, which I believe is partially due to Kia’s success.

With the new Optima, Sportage, and several other new Kia products coming to market, Hyundai is afraid that its junior brand could actually surpass it to become the top-selling brand in Korea. Meanwhile, outside of Korea, Kia remains far too important to Hyundai’s success to simply go away. Hyundai is still growing faster than Kia in the US, though with new Kia products coming to market and a new US plant coming online, Kia is poised for continued growth. In the short term, there’s room for both to grow in the US market, so killing Kia makes little sense right now.

Still, in the long term, the two brands are insufficiently differentiated enough to create a bit of the Chevy/Saturn dynamic down the road. Sure Hyundai will offer upmarket cars, but both brands essentially stand for Korean value. Once Hyundai and Kia’s market-proof momentum slows (and it always does), competition between these two brands will become inevitable, and Hyundai will be faced with some tough choices. That almost certainly won’t happen by 2011, which makes 24/7 Wall Street’s prediction ring a bit hollow, but it’s definitely a problem that bears having an eye kept on it.