Hyundai and Kia are running a sack race together

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Hyundai Motors and Kia Motors are a powerful combination, and their rising sales reflect it. But like sack race runners, the South Korean auto makers need to work together or risk tripping over their own feet.

Hyundai bought a controlling interest in Kia in 1998, but has been steadily divesting over the years and now holds a 34% stake. The two companies are still closely linked, sharing platforms, powertrains, and a joint research center.

Since 2005, they've maintained their own marketing operations and tried to differentiate their brands. Hyundai is aiming for a "modern and premium" brand , while Kia is supposed to be more "sporty."

The strategy has paid off in increased sales. According to Bloomberg, the two companies sold a record number of vehicles in 2011 , and Motor Trend reports equally strong sales in January 2012. Kia sales are up 27.8% , with 35,517 units sold while Hyundai sales are up 15% with 42,694 units sold. Both companies are leading with their mid-sized sedans, the Kia Optima or the Hyundai Sonata.

Or is it the other way around? That's the problem facing the combined companies -- despite efforts at differentiation, their cars are still competing head-to-head, and some of Kia's growth is coming at Hyundai's expense. That's a conflict the two companies are going to have to work out, and soon.

Kia and Hyundai do not trade in the U.S., but both companies are represented in the First Trust NASDAQ Global Auto ETF ( CARZ , quote ) and the iShares MSCI South Korea Index ETF ( EWY , quote ).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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