Hyundai is moving forward on plans to increase US manufacturing capacity following a strong sales and earnings report. Meanwhile, Volkswagen recently announced a plan to dramatically cut its global models by 50 percent and eliminate 50,000 positions.
Let’s start with Hyundai. The Hyundai Motor Group, which includes Hyundai, Kia, and Genesis has seen its market share in the United States grow from 8.4 percent in 2020 to 11.2 percent through 2025. Overall sales grew 50 percent over that same period. These statistics are significant because no other automaker has come close to achieving similar results. Most automakers saw their sales and market share decrease or remain flat. One exception is Tesla, which grew 2.1 percent.
In order to continue this growth, Hyundai is doubling down on committing to US production. The automaker wants to produce at least 80 percent of the vehicles it sells domestically here in the United States by the end of the decade. As of now, that percentage is around 40 percent. Greater US production will help mitigate the added cost of tariffs currently in place for major Hyundai exporting countries such as South Korea and Mexico.
Hyundai’s US performance has helped it become the second most profitable automaker and the third best selling automaker globally behind Toyota and Volkswagen. The comparison to Volkswagen is interesting because at the same time Hyundai’s confidence seems to be at an all-time high, Volkswagen just approved a new business plan that paints a less than optimistic view of the future.
In order to survive, Volkswagen has concluded that it needs to cut its model portfolio by about 50 percent and reduce build complexity by 75 percent. At the same time, the automaker plans to eliminate 50,000 jobs by the year 2030.
Volkswagen CEO Oliver Blume is frank in describing the causes of his company’s problems, namely the United States and China. "We are in the biggest transformation in the history of the global automotive industry. Everyone is affected: by US tariffs, by the collapse of the Chinese market and massive price erosion there, by geopolitical conflicts such as those in the Persian Gulf, by ever-harder competition in Europe and by sweeping regulation," he said.
China has become a major threat to the established automotive hegemony in recent years. I encourage anyone who wants to learn more about the rise of Chinese car companies to read this article published by Car and Driver. Basically, China has learned from Western automakers how to build advanced, high quality cars while keeping production costs down due to vertically integrated supply chains. As Chinese cars become more desirable, they’ve taken over their home market and are steadily conquering other markets throughout Europe and Asia.
The problems posed by the United States (i.e. tariffs, flip-flopping attitudes towards electric vehicles, and the deadlock with Iran over the Strait of Hormuz) are not exclusive to Volkswagen. But unlike Hyundai, Volkswagen has struggled for decades to gain traction in what remains the second largest market for new vehicles. Last year, Volkswagen ranked 14th in sales among all manufacturers with a US presence. It was outsold easily by Mazda; and Subaru sold more vehicles than Volkswagen and Audi combined. Offerings have been at times either too small, too expensive, or too unreliable. Volkswagen was also extremely late in entering the SUV market with competitive models. Finally there is the diesel emission scandal of 2015 which cost Volkswagen at least $33 billion in fines, penalties, and legal settlements in addition to the incalculable reputational damage.
All this does not mean Volkswagen is giving up on the US market. According to its strategic plan, “In North America, the Volkswagen Group will focus on the most profitable segments.” However, no mention is made regarding which segments those are and which vehicles may be discontinued.
Back in 2015, the late Fiat Chrysler CEO Sergio Marchionne argued that massive consolidation and cost savings were needed for the auto industry to survive in the 21st century. His warnings appear highly prophetic today in light of the COVID-19 pandemic and ongoing challenges posed by China and the United States. Amidst all this uncertainty, it’s anyone’s guess what the car world will look like in the near future, who will fall, and who will remain standing.
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