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Hyundai's Stealthy Growth Strategy Could Pay Off Big Time

Hyundai has just announced plans to build a factory in Brazil, with the ultimate goal of toppling Ford (F) in Latin America. This is curious at every level, as Ford has been doing business in Brazil since 1919 and isn't even the number one carmaker in the country -- it's number, um, four. However, Hyundai's approach here, for all its weirdness, is quintessentially Hyundai.

The Korean carmaker's expansionist objectives are part of a much larger trend: the mad rush to sell vehicles in the developing world. I checked in with the ever-reliable Jesse Toprak, VP at TrueCar.com, for his take:

Eighty percent of all growth in global new vehicle sales in the next five years will occur outside of the North American market, hence the importance of strong presence for any automotive company with ambitious growth targets to have strong presence in developing countries.
Developing world growth comes with its own problems
Hundreds of thousands of new drivers in countries like Brazil (and China and India) means that environmental issues are going to come to the fore and automakers figure out what kinds of cars and trucks they want to sell. Fortunately, Brazil is largely a small-car region, and Hyundai's plan is to manufacture a compact, high-MPG, low-emission car.

It's not going to be easy to unseat even Ford at number four: Hyundai currently has about 3 percent of the Brazilian market, while Ford has 10 (the rest is spread among General Motors, Fiat, and Volkswagen. Basically, Hyundai is going to spend money to lose money, for a while. "The initial few years of expansion in a new country are usually not very profitable, in fact they are usually costly," Toprak said. "However, the payout could be significant."

The cool little car company with grand ambitions
Hyundai has a track record of stealthy giant killing already. It saw its North American market share grow dramatically in the aftermath of the Motown Meltdown in 2009.

The company started small, selling cheap little cars that were backed up by an industry leading warranty. This assured customers that if anything went wrong, Hyundai would fix it. After the downturn, Hyundai set up programs to allow buyers to return their cars if they lost their jobs, as well as to lock in gas at lower prices.

Meanwhile, the company was upgrading its product. The Genesis sedan and coupe made a low-cost run at the luxury and performance markets, giving BMW, Mercedes, and Lexus something to think about. Hyundai just racked up its best U.S. sales numbers ever, capping an impressive run.
Translating U.S. success to Brazil
But the thing is, any new import carmaker coming to American has an automatic point of access: small cars. In the developing world, that's pretty much the only game in town. So brand becomes all important.

This is where Hyundai faces a struggle: Brazilians aspire to own a Chevy in the same way that Americans aspire to own a Cadillac. For an upstart to make an impact, it will have to do something special.

But special is right in Hyundai's wheelhouse. Also, the company won't try to charge Ford's 10 percent share right away. It will instead chip away, a point or so every year, until it suddenly breaks through with a surge, as it did in North America.

So, memo to Ford: you don't want to be number four in a market where that makes you the most obvious target, and one gunning for your spot is the Korean carmaker that could.

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Photo: Hyundai
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