With the automotive market becoming more competitive by the year, any attempt of making cars stand out is interesting. Making them cheaper, however, takes the situation to a new level.
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Why are Korean Cars so Cheap?
Korean cars are optimized in many ways to be cost-efficient. Large Korean automakers work from the marketing strategy to the very production of raw material. They seek a deep understanding of all parts of the industrial process and set all its variables in favor of minimizing the time and money invested to develop and market every car model.
\That is the main reason why Korean cars are so cheap.
Reason 1: Segmented Market Strategy
The largest Korean automaker, Hyundai, divides its operation in three brands.
Kia is dedicated to sporty, no-frills car models. The newly-formed Genesis is establishing its image in the luxury market. And the Hyundai brand has become a traditional generalist brand.
That division allows the company to work in many market segments at the same time. There are models at different moments of their life cycles on sale. While some are recent, others have brought profit for a long time. As a result, the investment made to release some cars is compensated by the profit brought by others.
The company is also protected against the fluctuations of the economy. People tend to buy cheaper cars in times of recession and choose luxury ones in times of expansion. By offering cars of multiple price ranges, it is possible to keep sales high at almost all times.
Reason 2: Model Families
Creating body variations of the same car cuts development and marketing costs.
The Kia Ceed, for example, is currently offered as a hatchback, light off-road (XCeed), station wagon (Ceed Sportswagon), and shooting brake (ProCeed). Four models could have independent positions in the market, but Kia chose to develop them all under the same family. Hyundai, on the other hand, has a compact platform of global scope, which is used on models of many body styles.
That strategy allows the models to share some components, especially those related to design, and that automatically reduces the development cost of each one. Besides, the automaker can invest in building only one image in the market: all those models will be treated as variations of the same, which also helps to make people more confident to buy one.
On the other hand, bundling all the models together limits their potential. It is more difficult for the automaker to keep them up-to-date with their respective customer demands because they need to follow the same life cycle.
Besides that, redesigning a car family model after model affects their sales: for instance, once the hatchback has already been updated, few people want to buy the derived sedan or the crossover at the same time because they know those models will be updated soon. Automakers must be aware of that to preserve the necessary sales volumes.
Also read: Are Hyundai Good Cars? All You Need to Know
Reason 3: Shared Platforms
Using the same components in several models helps reduce costs.
Korean automakers invest in modular platforms, that is, structural and mechanical components designed to be used on many models with few adaptations. Brakes, electric architecture, steering system, suspension, and the overall structure are some of the components of a car’s platform and, in a modular project, can be displaced within some limits in order to fit models of different sizes.
While that strategy is expensive to implement, it allows large reductions of time and cost to develop new car models. The automaker needs to invest smaller amounts every time and that can be translated into lower prices for customers to buy and to maintain their cars.
In practice, Korean automakers have decided that modular platforms have some limits: they do not use only one for all models nor individual ones. Instead, they develop one modular platform for each large group such as city cars, luxury cars, and utility cars. That strategy balances the industrial efficiency of sharing platforms with the freedom to tailor each car model to its target audience.
Reason 4: Few Experimental Models
Korean cars are usually realistic and focused on what people want.
Many automakers release flashy and futuristic concept cars. French automakers, for example, release conceptual prototypes of all sorts: futuristic ones to showcase long-term plans and intentions, realistic ones as a preview of what is going to hit the streets soon, and artistic ones merely as a stylistic exercise.
Korean automakers are no exception to that practice but their concept cars are only restricted to auto shows. They focus on traditional, almost conservative models to produce and sell. Hyundai, for example, is focused on hatchbacks, sedans, and the trend of the moment, crossover cars and SUVs.
Offering precisely what people want practically ensures high demand and, consequently, high sales volume. Korean automakers concentrate their investments that way instead of spending on projects of questionable market performance and, as a result, have fewer and rarer losses to compensate. This is yet another reason why their cars are not expensive.
The downside here is that taking such a conservative positioning may limit the automaker’s potential. Some of the best-selling car models and market categories ever created were born as ideas of unknown prospects which ultimately caught an automaker’s attention. Korean automakers usually prefer to wait for others to do that then follow the trends they set.
Also read: 15 Cars that NEVER Rust (100% Galvanised)
Reason 5: Accumulating Production Activities
The Hyundai Group has its own foundry, Hyundai Steel.
Automakers usually purchase many components from third-party suppliers, from raw materials such as metal sheets to complete components like brake systems and transmissions. That way, each part is produced with plenty of expertise from the respective supplier, and the automaker’s productive process is simplified. However, those parts come at a cost.
Hyundai Steel produces a large portion of the metal sheets used in the automaker’s car models. By concentrating more parts of the production process on itself, the Hyundai Group has larger control of all activities and eliminates the price markups which come from purchasing material from third-party suppliers.
The negative consequence of this strategy is having too many assets. The company has a very large portion of its value invested in properties, so any changes become more difficult to apply. It should always think in the long term but, unfortunately, that is not always possible – unexpected situations such as the ‘2020 health crisis end up more difficult to deal in a financially healthy way.
Are Korean Cars too Cheap to be Good?
No, because they are cheap in a planned, engineered way. Korean cars are optimized to focus on essential components and leave behind anything that could bring unnecessary increases of time and money in their development.
Decades ago, the most common way to make cars cheap was to use lower-grade materials and simplified components and, at times, even to downright remove equipment. Those were “dirty” ways to make cars cheap, that is, the result came at the expense of making them literally worse products. Fortunately, that has completely changed.
Nowadays, cars are “cost-efficient” rather than merely cheap. They are optimized to focus on essential components and leave behind anything that could bring unnecessary increases of time and money in their development. That is how Korean automakers manage to offer low prices while preserving a competitive level of overall quality.
What are Other Alternative Cheap Brands for Korean Cars?
It depends on the region because of the available options. If you live in North America, good alternatives for you might be Honda, Subaru, or Toyota. In Latin America Chevrolet, Fiat, or Volkswagen. In Europe, it might be Skoda, Dacia, or Seat.
Fortunately, the strategy of planning cars to be cheap in an efficient way has become a trend in this industry. Nowadays, all automakers work with modular platforms to some extent and have been obtaining favorable results. Korean cars are cheap for other reasons as well, but their competition is only becoming stronger and stronger.