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Growing pains?

By / 6 years ago / Interview / No Comments

As most mainstream car manufacturers scrabble about trying to retain market share, Kia Motors (UK) president and CEO Paul Philpott has a different kind of problem: how do you manage huge growth in a sensible, measured way?

It’s a good problem to have, but there are issues. Higher volumes of cars need to be introduced into the market carefully so as not to harm residuals, especially on the fleet side, dealers have to invest and grow in size to manage the increased numbers of products they present new, and service when sold. And in Kia’s case, you need to persuade customers to pay more money for their cars, which were once cheap, but now sit among the mainstream.

Philpott enjoys the challenge though: ‘We’ve enjoyed a good period of growth: in 2008 we sold 31,000 units and this year are on track to double that at about 65,000.

‘Our long-term aspiration is 100,000 cars, and I think nominally we can achieve that in five years. We can’t keep doubling every five years – we’ve replaced all our cars and so 100,000 is feasible when we next turn the range, which is four years out.

‘If we are going to do 100,000 cars in five years, at that stage it has to be 50/50 fleet/retail. On the retail side of the market, there are only three mainstream brands that sell more than 50,000 retails cars: Ford, Vauxhall and Volkswagen, so we’d need to be number four, and now we’re number eight.

‘So a vital element of this growth is fleet. Therefore, if you set out with that plan, the other half has to be fleet. But it’s got to be done right, through all the right channels. In fleet it is very easy to fall into the trap of rapid growth, but we’re going to grow step-by-step, so if that 100,000 takes eight years, 10 years, then so be it, but we’ll build it progressively and profitably for our partners.

‘We’ve been relatively modest players in fleet, but with the introduction of the new Carens we now have a full range of latest designs, seven year warranty products and that opens doors in fleets. We’re not going to dramatically increase our short cycle business – we have a presence in rental, which will continue although we may scale back slightly. What we are looking to do is build progressively and responsibly.’

Design has been key to Kia’s recent success: it now has a family of very good looking new products, and models such as cee’d are very important to the firm in the fleet market.

Attractive new cars such as the Sportage have brought new drivers to the brand, which is just as well, because Philpott reckons that the move upmarket has meant it has lost some of its customers who purely bought on price.

‘In the last year, growth has been driven by conquest business because prior to that we didn’t have a loyal customer base: we were selling cars at a significantly lower price – those 30,000 in 2008 were done as a low price brand,’ he explains.

‘With the new products clearly we have the ability to sell cars at a higher price, but that might be hard to those people who previously bought our lower price cars.

‘So growth had to come from conquesting from other brands. Now with our range of cars at the price they are, we have a loyal customer base and we’re looking to keep them loyal as well for the next new car purchase. We now benchmark against mainstream competitors and build up a basket from them, because our product is now good enough to compete, and if that means the price increases, then so be it. Five years ago we had to have a price discount but not now – we have confidence in the product.’

For a brand such as Kia this rapid expansion puts pressure on the dealer network, not least because they have to find the physical space to show all the new cars, and the workshop room to deal with increased business. But there will be no expansion in numbers, Philpott says.

‘I think at the moment the number of new customers is increasing all the time and our dealer network is investing in capacity, but we’re not expanding the number of dealers,’ he says. ‘We had 160 when we sold 30,000 cars, now we have 170 dealers selling twice that, so the scale of their businesses have changed.

‘Some dealers that have solus Kia are increasing the size of the showroom and workshops, and even dealers that have been dual franchise are now saying they will go solus, and in the last 12 months and the next 12 months, 20 dealers have or will go down that route.

‘There are flexible ways in building with dealer partnership. A dealer that has performed well for us over the last five, we are talking to them about appropriate investment. We don’t want to saddle them with a gin palace but we want the right capacity to grow.’

 

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