Kia still vulnerable to low-cost rivals

Damien Meredith says that brands from low-cost nations in Asia could yet dominate mainstream segments of the local market.

"We're all concerned; you've got to respect any opposition," the Kia Australia COO told motoring.com.au last week, during the local launch of the new Sorento (pictured).

Kia and its parent company Hyundai (operating through separate distribution channels in Australia) have long felt vulnerable to Chinese brands offering Australian consumers low-priced products and taking considerable market share away from established brands.

"They're probably not as advanced as what everyone thought they would be at this point in time. But they're still competition – and we respect that."

Hyundai openly embarked on a push upmarket as a defensive strategy some years back, rather than being displaced in the price-sensitive sectors it occupies in Australia by brands that can land vehicles here at a lower cost.

Now that the dollar has dropped below 80 cents US and the market environment here remains hard-fought, the risk of a new brand walking in and swamping one or more market segments seems to have receded.

Chery shipments to Australia are drying up and Great Wall commercials and SUVs have experienced a sudden decline in sales over the past two years, but Chinese brands are not to be dismissed lightly, Meredith says. His doubts are based on historical precedent.

"[Everyone] looked back to the 60s and saw what occurred with the Japanese in Australia; they looked back to the 80s and saw what occurred with the Koreans in Australia," he said, explaining why the local automotive industry remains uneasy about Chinese brands selling here.

Chinese manufacturers are currently occupied with building up production capacity to meet domestic demand, but could turn their attention to Australia once the need for export volumes reaches a certain tipping point.

"These brands can come back very, very quickly – and you've just got to be very wary of what occurs with all brands," Meredith remarked, in the context of Chery.

Asked whether the two Korean brands had done enough to improve their respective brands and future-proof themselves in the face of potential competition from abroad, Meredith sounded pessimistic.

"I think we're probably only just starting, to be quite honest," Meredith replied. "There's been enormous growth, as we all know, with Hyundai over the previous six years, but in regards to brand measurement, there's still a long way to go."

Meredith sees signs of Kia's brand image improving locally, which could be due to the importer ceasing to tell people "how cheap" the brand's products are.

Contributing to Kia's improving brand image and sales growth has been the introduction of a seven-year warranty from October last year. Far from a perception that it's too good to be true, Meredith says, the public has quickly warmed to the new offer.

"[It's] taken at face value and [they] look upon it as to say: 'Wow, I'll drive this car for four years and I can give it to Johnny who's going to be 17' – in New South Wales, or 18 in other states – and he's still got three years of new-car warranty," says the Kia exec.

As a bonus for Kia, the very long warranty is believed to be helping the brand's resale values.

"It's a bit early to tell, but anecdotally the answer's 'yes'. It has certainly helped in regards to doing business with big fleets. That's probably the best way to answer it."

There are exclusions for some fleets – such as taxi operators, for instance – but otherwise fleets are entitled to the seven-year coverage.

Meredith has in mind a target of 50,000 annual sales for Kia within five years. In the current scheme of things that would move Kia up to ninth place in the VFACTS top ten – below Volkswagen and ahead of Subaru, assuming that Kia is the only brand to move up the ladder.