Kia's Aussie target

Kia Australia cherishes the hope that it will be the fastest growing brand in this country.

That hope is qualified, of course, to mean "fastest growing" among importers and manufacturers selling above 5000 units a year. Otherwise the company will be competing for that title against a prestige brand introducing some hot-selling new model that will skew the sales total for the year. But among volume-selling car companies, Kevin Hepworth, in his role as the importer's National Public Relations Manager, believes it's possible for Kia to achieve "double-digit" growth. Globally the company enjoyed growth of 18.6 per cent last year, so it's not impossible here in Australia.

There might be some hurdles along the way however, as Hepworth's colleague, Steve Watt, explained to motoring.com.au late last week. According to Watt, Kia's National Marketing Manager, supply for the Australian market can be precarious at times. This was never better illustrated than in the changeover from the previous model Rio to the all-new model, soon to spawn three-door and sedan variants (pictured).

VFACTS figures show that the Rio light car's sales in 2010 were 9052, but only 6187 in 2011. The difference was simply a matter of running out of old stock two months ahead of the new model's introduction — with the concomitant problem of ramping up inventories of the new model stock. But why did Kia run out of the old model so soon?

"As a model is coming to the end, the cut-off date for the line is one thing, the amount of components you have is another thing; the demand in the market is the unknown," explained Watt. "So then, if one of your dominant markets — US or domestic [South Korea], or another emerging market — all of a sudden places [a large order with the factory]...

"What happened with Rio: there was a huge demand spike in the Russian market — probably took a whole lot of volume off the line — so our planning was based on the demand being stable. If there's a hiccup or an up-spike in another market, we can be a victim of that, unknowingly.

"The allocations out of the factory were [thus] spoken for..."

Supply seems to be a growing concern at Kia — in more ways than one — with the mid-sized Optima sedan being sold in a trickle last year. Things are on the mend, with the company now offering a base-grade Si model to join the Platinum variant in the Optima range. Hepworth says that the new variant is a sign that Kia is getting on top of supply issues for the Optima, at least. After all, the importer wouldn't push the factory to ramp up production of a lower-cost model if it weren't also filling back orders for the more lucrative flagship.

In the future though, how will the parent company smooth out these issues in markets around the world? Kia's growing pains won't ease without perhaps some tough decisions concerning production infrastructure.

"The establishing of new factories or new lines or increased shifts — these are all very complex things," Watt responded. "It sounds easy to put another shift into a factory and turn out another 20 per cent of Sportage [production] because we've got the demand there to need it, but the complexity of dealing with a union to do that, getting the component suppliers to match up... so I think any change in supply is not a short-term fix.

"We've seen markets, like in the US, the demand on Kia product spiked by 25 per cent. That's a key market, it's looked at as a priority. If the factory is a finite limit and [the market] is growing at such an extraordinary rate, then there's always going to be a consequence — and the consequence is that some other market is going to have to give up a little bit of its share to help this emerging, very dominant market — like the US market — to meet its potential."

That means Australia will be the low man on the totem pole for vehicle supply from Kia. While Kia is working flat-chat to meet the growing demands of the US (and Russia too, now), the company is tending to focus on left-hand drive product development in doing so. It's a problem that has forced a re-think among other car companies, including Mercedes-Benz and Ford, whose President and CEO, Alan Mulally told Aussie journalists in India earlier this month that all 'One Ford' platforms from this point would be developed for both left and right-hand drive markets.

Kia seems still to be grappling with this issue. The 2.0-litre turbocharged Optima is a case in point.

"We want it," was Watt's simple response when asked about it, but the actual case for bringing the forced-induction sedan to Australia is contingent on re-engineering the car for right-hook application.

"The Optima 2.0-litre Turbo has been packaged for left-hand drive only at this stage," said Watt. "It's only being sold in [LHD] markets.

"There would have to be a repackaging of the under-bonnet [area]. That's a big job. We're talking to [the factory]; we would like them to open that to us.

"A lot of the Kia markets are left-hand drive; I think right-hand drive is probably less than 35 per cent of total output. The sheer assigning of engineering dollars... the engineering capacity isn't just how much money you've got; it's also the finite resource of people and technologies and all that. So the size of the left-hand drive market, particularly given that the Korean domestic market is left-hand drive and we — jointly with Hyundai — are so very dominant in that market, it means that the company's thinking is still very much supporting those key markets: the domestic market and the US.

"So for us to lobby the factory to open an R&D process to change the packaging of an Optima — for example — it's a big job. There are several gates we need to get to before we even get to the point of negotiating. At this point we've expressed our interest..."

It doesn't necessarily mean the Optima Turbo is off the menu for Australia though, it just means there'll be an indefinite wait — and it still may not reach our shores.

"We wouldn't request it if we didn't think it was a possibility," said Watt.

Supply isn't just hampered by the number of cars that can be spat out the end of a production line either, nor is the availability of a car a question of how fast the company can deploy engineers to develop it. Engine production is an issue for Kia also; diesels in particular, at the moment. If the company had its preferences — and it does — it would prefer to bring in fast-selling Sportage diesels by the boat-load, than slower-selling Rondos or Ceratos powered by diesel.

"We're only about 40 or 50 units a month at the moment," Watt says of the Rondo MPV. "We wouldn't see our performance in that segment [improve] significantly, even with diesel.

"Diesel supply's been tight, so we've got to be very careful where we want to apply diesel, because it's not necessarily the bodies that are in limited supply; it's the engines.

"If we place a diesel engine in Rondo and then create a demand for it, that will then compromise our ability to fulfil Sportage or Sorento sales. And now with Carnival having, again, a new generation diesel, [diverting diesel engine production for] Rondo will affect that."

Creating a demand within a segment is a stretch too, Watt says. It's an option open to importers posting larger sales volumes than Kia's. A diesel for the Cerato would be adventurous in the current climate.

"If the supply is limited or is finite, then we need to look at where the segment demand for diesel is higher. We're not a leading brand yet, we can't drive a new segment; we don't have enough marketing dollars — nor enough capacity in the Australian market to do that. So we need to look at where the demand is in the segments and try and meet those demands first — rather than establish a new demand."

It's a problem readily illustrated by Ford Australia's lack of marketing bucks to promote the EcoLPI variant of the locally-built Falcon, distinctly from the rest of the range.

In answer to the point that Hyundai's i30 offers a diesel variant here, Watt re-asserts his point that diesel remains a better marketing fit in the Sportage than in the Cerato.

"It's the same argument as with Rondo; diesel [engine] supply still isn't free enough for us to do that. There are cars where turbodiesel suits the segment better. Diesel engine in the Sportage makes for a wonderful drive — a car that's competent in town and out in the countryside. So we need to concentrate our diesel supply in the model lines where it fits best.

"Those more 'niche' offerings — I don't know what the sales of [Hyundai's] i30 diesel is, but I know it's certainly not dominant — we would have to offset against that compromise potentially diesel [sales] volume in lines [where] there [is] maybe more potential volume."

As for other upcoming product on the horizon, it's a mixed bag. GDI (Gas Direct Injection) will reach Australia in the next Cerato, for instance, but it will be a wait.

"We're going to see a new Cerato in 2013; we haven't defined how that car's going to be set up yet, but GDI is forward technology in the company and we see it as having a role in each one of our model lines."

So GDI will have to wait for then before reaching Australia in the Cerato, Watt confirmed. Picanto is yet to be confirmed.

"We're working on 2014," Watt said. Asked whether Kia Australia had now established a strong business case for the tiny passenger car in the local market, Watt answered in the affirmative. 

"We believe we have. We're launching, in the next couple of weeks, our three-door Rio, and that's a car that we believe is certainly going to fill a similar place as Picanto. Certainly we have big volume aspirations for that entry-level car. The case for Picanto is slightly different. This is a car that's done very well in Europe; it's got a funky feel, it's probably got more of an inner urban coolness to it. So it will fill a slightly different role in our line-up — if we get approval to bring it in."

Hyundai is not bringing in the i10, however, so what's the difference in the two companies' outlook in the sub-light segment?

"I'm not privy to their plans," Watt replied. "I don't know why they've pulled away from i10. We definitely want Picanto; we're putting as much pressure as we can on the company to deliver."

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