How did Kia pull off a massive turnaround?

Salutations, Olio aficionados! 👋

Happy Hump Day and welcome to the 60th edition of Weekly Olio - your trusty source for giggles, wisdom, and a dash of intrigue courtesy of our tantalizing thought piece (yes, buckle up for Publisher's Parmesan). 🧀

This edition of Weekly Olio is brought to you by Bay Area Times.

The Quote󠀢 💭

The Tweet 🐦

Albert Bierstadt was a German-American painter who is widely regarded as one of the greatest landscape painters of the 19th century. He is best known for his lavish, sweeping landscapes of the American West, which he painted with romantic, almost glowing lighting, sometimes called luminism.

The Infographic 💹

With the economy weathering fresh headwinds in 2023, here are the sectors that delivered the best returns for investors. As has been the case for the last few years, tech continues to lead with massive strides in AI powering both Nvidia and Microsoft. Travel made a strong comeback post the hit from CoVID. On the losing side, as CoVID wore off, vaccine makers like Moderna lost their charm. In a tough macro-economic climate, will be interesting to see how 2024 unfolds.

The Short Read 📝

Discount rates in venture-backed startups - by Jerry Neumann

Jerry Neumann is a twenty-five-year veteran of venture capital. He has invested in some of the most successful venture-funded companies of the past three decades, including Datadog and Trade Desk, and has worked alongside dozens of entrepreneurs as an investor, board member, and advisor.

The article discusses the importance of discount rates in venture-backed startups. The author suggests that a 40% discount rate is a good rule of thumb for calculating lifetime value (LTV) in startups. However, the author also notes that investors will expect a certain return on their investment in the company, and to meet that expectation, the discount rate must be at least as high as their expected return.

The Long Read 📜

The ONDC conundrum: Where protocols win... and where they don't... - by Sangeet Paul Choudary

Sangeet Paul Choudary is a business executive, advisor, and best-selling author. He is best known for his work on platform economics and network effects. He is the co-author of the international best-selling book Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You.

The article discusses the Open Network for Digital Commerce (ONDC) and its potential impact on India’s digital economy. The ONDC is a government-led initiative that aims to create a unified digital commerce infrastructure for the country. The article highlights the challenges that the ONDC faces, including the need to balance the interests of various stakeholders, such as merchants, payment providers, and consumers. The author argues that the ONDC has the potential to transform India’s digital economy by enabling greater interoperability and competition among digital commerce platforms.

Publisher’s Parmesan 🧀

How did Kia pull off a massive turnaround?

For many of its early years in the U.S., Kia was a low-end brand and its cars were often criticized for poor quality, reliability and design. But after a brush with bankruptcy and an investment from Hyundai, Kia grew fast, started winning awards, and became a highly desired brand. Sales have increased by three-fold in the US over the last 20 years.

Now, it’s one of the most marked-up brands in America. Vehicles like the Telluride, Stinger, Sportage, Sorrento and EV6 have become strong sellers and critical darlings. But Kia faces challenges. An EV sales surge in 2022 has given way to an around 30 per cent decline in 2023. There are lawsuits from several U.S. cities over stolen vehicles, recalls over fire risks and a snub from the federal government looking to boost American EV manufacturing. So can the newly cool Kia brand keep up the momentum?

Picture this: a car brand that was once considered a laughing stock, a punchline to a joke. That was Kia in the 90s - a low-end brand with notoriously terrible vehicles. But fast forward to today, and Kia has transformed its identity into a bona fide underdog story.

Thanks to its parent company Hyundai, which saved it from bankruptcy in the late 90s, Kia has undergone a remarkable turnaround. The company took bold risks with vehicles like the sleek liftback Stinger and the popular Telluride SUV, winning awards and earning praise along the way.

Now, Kia is one of the hottest brands in America. Sales have skyrocketed threefold in just two decades, and it's not uncommon to see Kia cars marked up in dealerships across the country. But make no mistake - this success didn't come easy. Kia had to overcome plenty of obstacles to get here.

Kia's history

KIA began its journey in 1944 as a manufacturer of components such as steel tubes and bicycle parts. In 1952, the company produced Korea's first bicycle, the Samchully. Later, in 1962, KIA introduced its first three-wheeler, followed by the T-600 in 1969, and the Brisa pickup truck in 1973, which was later transformed into a passenger car the following year.

KIA made its debut in the US market in 1994. At that time, the brand was primarily known for offering value-based products, but their cars didn't have airbags unless you added them.

When entering the US market, companies often start with a price positioning strategy to appeal to budget-conscious customers. However, this is not a sustainable approach in the long run. Kia, like many other newcomers including Japanese brands 50 or 60 years ago, began with this strategy. They advertised their cars as affordable and well-made through quirky commercials.

The brand gradually expanded across the United States, initially starting with the Western states. However, in the nineties, they suffered from a confused identity. They released vehicles like the Kia Borrego, which was an unusual SUV that appeared to be car-based but was actually based on a truck. They also introduced the Kia Amante, a vehicle that attempted to look like a Jaguar or something similar but was ultimately unsuccessful.

The rebuild

It all started in 1997 when Kia, the second-largest Korean automaker at that time, declared bankruptcy. This added to the Korean financial crisis. A bidding war ensued between Ford and Hyundai. Despite the Korean government's reluctance, Hyundai, which itself was not in a great position, managed to rescue Kia in 1998. The Korean government was hopeful that Ford's arrival would boost foreign investment and bring technological advancements. Hyundai paid $912 million in cash and received a 51% stake, with a condition that $5.8 billion in debts would be forgiven. The two companies were restructured to share platforms, technology, components, and leadership. Gradually, Hyundai has lowered its stake to approximately 33% of the company.

During the mid-nineties and early 2000s, KIA was consistently ranked at or near the bottom of every list possible. However, around 2012, things began to change for the better. That year, Kia started to receive awards and continued to receive them consistently.

J.D. Power conducts three major surveys to evaluate the quality and satisfaction level of vehicles.

• The initial quality study measures the problems or complaints that owners face during the first three months of ownership.

• The vehicle dependability survey measures the same issues after three years of ownership.

• The APEAL study is similar to the others but focuses on satisfaction with design, performance, safety, usability, comfort, and other factors, rather than just quality issues.

Kia has consistently won both an initial quality award and an APEAL award every year since 2012. From 2015 to 2020, it was ranked as the number one mass-market brand in the initial quality study. In 2012, the model year received a dependability award. In 2015, Kia broke records by becoming the first non-luxury brand to top the dependability survey list since 1989. In 2023, Kia set a new record, receiving seven appeal awards, the most by any brand in a single year over APEAL's 28-year history. Kia's list of achievements goes on.

And sales have followed suit.

Between the years 2002 and 2022, the global sales of Kia have grown from $12.8 billion to $66.9 billion. When Kia first entered the U.S. market in 1994, it sold approximately 12,000 units. However, in the year 2022, it managed to sell almost 700,000 units, which is a significant increase. In the year 2022, Kia's market share in the U.S. also increased from 1.4% to 4.96%.

Kia is a brand that boasts some of the lowest days to turn in the industry, which is essentially the time it takes to sell a car. This is considered a gold standard for measuring brand popularity by industry analysts. For instance, in 2005, Kia's average days to turn was 83. However, by 2012, it had reduced significantly to 33, second only to Subaru among its direct competitors. Although it rose again to a high of 79 in 2017, which was almost where it had started, it was still behind several rivals. However, in 2021, the number fell again to 40, and by 2022, it had further reduced to 15.

Kia is known for having some of the highest dealer markups in the industry. This trend has continued for several years, with Kia consistently outperforming its competitors in terms of two-markdown products. In 2022, Kia dealers had the least amount of discounts compared to their peers. On average, Kia cars were marked up 6% above their sticker price, which is significantly higher than the competition. While this may not be good news for buyers, it does indicate that many are still willing to pay the higher price.

So how did it happen?

It took them a while to build their brand and really understand what the U.S. consumer wants in terms of quality, features, content, style, and reliability.

The company, along with Sister Brand Hyundai, introduced a powertrain warranty of 100,000 miles on their vehicles. This was a unique move and gave customers a lot of confidence, especially when dealing with a brand that they were not very familiar with. Offering to cover a car for ten years was unheard of and helped to establish trust with customers.

Hyundai Motor Corporation, along with Kia, made some high-profile hires. One of these hires was Albert Biermann, the former head of BMW's Performance division, who oversaw R&D on the engineering side. Biermann made significant improvements to Hyundai, Kia, and Genesis cars by playing a leading role in developing high-performance cars for both Kia and Hyundai, including the Hyundai Veloster N and the Kia Stinger.

Another hire was Peter Schreyer, who joined Kia as the chief design officer. He is known for designing cars such as the Audi TT, and his designs have been essential in distinguishing the Kia brand over time. Kia has gained a reputation for being willing to take risks, as some of their designs are quirky and polarizing.

Between 2002 and 2009, Kia made a total investment of $1.3 billion in different facilities across the United States. These included a corporate campus and design centre located in Irvine, California, a research and development centre located in Ann Arbor, Michigan, and Vehicle Proving Grounds situated in Mojave, California. In 2009, the company established a factory worth $1 billion in West Point, Georgia. Eventually, the investment increased to $1.8 billion. Currently, the factory produces 340,000 vehicles annually, operating 24 hours a day. Several SUVs, which have been crucial to Kia's success, are built in this factory.

Kia underwent rebranding and changed its logo, which piqued everyone's interest and encouraged them to investigate further. As a result, Kia has seen an increase in the proportion of higher-income customers. In 2019, 34% of Kia buyers had incomes over $100,000, which increased to 46% by 2022.

The future

Kia now aims to offer sustainable mobility solutions for various vehicles, ownership and use cases, power trains, and eventually autonomous vehicles.

From part of 2022, Kia has been ranked second in EV sales in the U.S. However, in the first half of 2023, its EV sales decreased by 30% compared to the same period in 2022. Currently, it lags behind several other companies, including GM, Ford, and Rivian. Moreover, Kia has been excluded from a deal that provides federal credits for EVs under the Inflation Reduction Act since its EVs are not produced in America. Nevertheless, there is a workaround that allows customers to receive the credit if they lease the vehicle. Kia is investing $200 million to prepare its Georgia plant to build the V9, which will qualify the car for the credit. Currently, only 40% of Kia's U.S. cars are manufactured at the factory.

As soon as EV9 is up and running at full speed, electric vehicles are expected to make up a whopping 10 to 12% of Kia's total sales. And get this - their internal combustion sales are still growing too! It's like a math problem and Kia's chasing the total, but they're not ones to shy away from a challenge. They're determined to get there early, even though regulations are in place. How will they overtake the dominant player in EVs? Simple - time and tenacity are on Kia's side. They're confident they'll get there, and we can't wait to see them do it!

Olio Jobs 💼

• Moderne Ventures | Chicago - Head of Investor Relations

• MIG Capital | Germany - Investment Associate

• Techstars | Tokyo - Program Manager

• VavaCars | Istanbul - Product Manager

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