In early December, Hyundai Auto Canada Corp. flew a group of automotive journalists down to San Diego to test drive its new Elantra on the sun-bathed roadways of southern California.

Steve Kelleher, Hyundai Canada chief executive, knew he had a winner with the Elantra, so before the journalists boarded the plane, he took the opportunity to make a bold prediction.

“I think this car is eventually going to be the number one selling car in its segment,” he recalls saying to them. “Ahead of the Honda Civic, the Corolla, and the Focus in Canada.”

It’s the sort of thing most auto reporters have heard a hundred times from overconfident execs, chuffed with their new product launch. This is especially the case in the highly competitive compact car segment the Elantra competes in. That one segment makes up roughly a quarter of the industry’s total Canadian sales and is dominated by Honda and Toyota.

Not suprisingly, most of the motor heads on the Hyundai trip rolled their eyes on Mr. Kelleher’s prediction, he recounted in an interview at the Canadian International Auto Show in Toronto this week.

It wasn’t until the trip was over that the writers realized Hyundai had something special with the new Elantra.

“After the drive, I went up to them and they said maybe [I] wasn’t so far fetched,” Mr. Kelleher recalled.

Of course, winning over a handful of ink-stained wretches is a far cry from winning over the public. So when the industry’s January sales figures arrived earlier this month — pronouncing Elantra as the best selling vehicle, of any type, in Canada — Mr. Kelleher admitted he was tempted to send the group of journalists an “I told you so” note.

“It felt pretty good,” he admitted.

Mr. Kelleher may be on top of the world, but Hyundai and its sister brand Kia, are also squarely in the sights of some nervous competitors — companies who actually make cars in Canada, not just sell them here. The Detroit Three, Honda and Toyota are battling the upstart car companies on two fronts, wheeling out a lobbying offensive against a possible Canadian free-trade agreement with Korea as they roll out new competitive small car offerings.

Toyota’s refreshed Corolla hit showrooms in mid-January. Honda, will have its new Civic for sale April, followed by the new Ford Focus in May. Meanwhile, the recently released Chevrolet Cruze just claimed the Car of the Year award at the auto show in Toronto this week, which will almost certainly give it a boost.

Stephen Beatty, Toyota Canada Inc. managing director, said while it was great that the Elantra won in January, he noted it was “only one month” and that the Corolla was a close second.

Nevertheless, a win is a win, and this particular victory was very important for both Hyundai and Kia as, up until now, Korean imports have not been given a whole lot of respect. When Hyundai first entered into the Canadian market in 1983, followed by Kia in 1999, they were competing only on price, not on quality. But over the years, there has been a concerted effort by both manufacturers to better-built vehicles that are also attractive to consumers at first glance.

“One thing we were missing was the emotional connection with the consumer,” Mr. Kelleher said. “It’s no longer that they have to buy it because it rationally makes sense. Now they want to buy it.”

The critics are taking notice.

“It’s been a journey for [Hyundai and Kia] that has been in the making for two decades in the Canadian marketplace,” says Ryan Robinson, J.D. Power and Associates director of the Canadian automotive practice. “It takes a long time to build up consumer confidence, particularly in the quality of your products.”

Kia’s market share in Canada has nearly doubled from 1.8% in 2005 to 3.5% in 2010, as its sales grew more than 90% over that time to 53,882 vehicles last year. Hyundai, over the same period, saw its own market share nearly double to 7.6% in 2010, selling 118,507 vehicles last year.

Mr. Robinson notes the Korean car makers are following a similar trail blazed by Toyota and Honda in the 1980s and 1990s.

“They’ve got their finger on the pulse in terms of cutting edge styling,” he says.

And now it looks like they even have the potential to join the dominant Asian autosellers in Canada. If not for some late-year incentives from Honda, Hyundai likely would have passed its Japanese rival (which has been so successful in this country with its compact offering, it dubbed Canada “Civic Nation” in its advertisements).

“It’s hard not to take the South Korean manufacturers seriously,” said Maria Soklis, Kia Canada Inc. chief operating officer. “There seems to be a real presence in the Canadian marketplace, and finally an acceptance, that we’re really happy to have.”

The sales surge of the Korean manufacturers has not gone unnoticed, especially with talk of the federal government renewing free-trade talks with Seoul that could potentially see the elimination of a 6.1% import tariff placed on the vehicles they build overseas.

On Friday, the Canada Automotive Partnership Council, which consists of five Canadian auto manufacturers, labour unions, and government agencies involved in the sector, met with Industry Minister Tony Clement. It urged him not enter into any free-trade agreement with Korea, or the EU, unless Ottawa ensures equal access for our manufacturers to the Korean market. Not just in terms of tariffs, but also to ensure there are not punitive regulations against them, said Sandra Pupatello, Ontario’s Minister of Economic Development and Trade, who sits on the council.

“We need to be mindful that when we enter into free trade agreements, we don’t do something that is going to negatively impact our automotive sector,” she said.

Ken Lewenza, Canadian Auto Workers national president, said the only way equal access can be achieved is if Canadian manufacturers export as many vehicles into the Korean market as are imported from there to Canada. Until that occurs, he said the federal government should not even entertain a free trade agreement with Korea, or the EU for that matter.

He said if Hyundai and Kia want to sell more vehicles in Canada, they should build them here.

“Korea deserves a lot of credit for the vehicles they have coming out,” Mr. Lewenza said. “All I ever say to people is, if this was the old Auto Pact days, they would have to build in Canada.”

Despite the objections, the threat of these tariffs being lifted on Korean vehicles does still pose a serious threat the other auto manufacturers, said Dennis DesRosiers, DesRosiers Automotive Consultants president. Cheaper imports would only add to the advantages they have in terms of quality, design, and value, he added.

“It’s the thing the other manufacturers are fighting tooth and nail. They’re terrified of it,” Mr. DesRosiers said. “It’s one thing to have the three competitive advantages they already have, let alone giving them duty-free access.”

Of course, more than half of Hyundai vehicles sold in Canada are currently built in the United States, including the Elantra, Santa Fe, and Sonata, Mr. Kelleher noted.

Kia also has a large manufacturing base in the U.S., which likewise falls under the North American Free Trade agreement.

But Mr. Kelleher acknowledged a free trade agreement with Seoul would certainly help him sell even more cars.

“Obviously, there’s economic advantage in that for us,” he said.

And at this point, he said it is highly unlikely that Hyundai would consider building vehicles in Canada again. (For a brief spell, from 1989 to 1995, Hyundai built cars at its Sonata plant in Bromont, Que. But the company was never able to reach the sales or production volumes to sustain it, eventually closing down.)

Mr. Kelleher said the global automotive industry has changed since the Auto Pact days when the Detroit Three had great incentives to build cars in Canada and sell them elsewhere. He said it has even changed dramatically since Toyota and Honda decided to build in the country in the mid-1980s. It has become more global and made Canada less competitive, he said.

“Being born and raised in Toronto, and being Canadian, I would love to see a Hyundai plant in Canada,” Mr. Kelleher said. “Is there anything in the plans right now? No.”

Financial Post

scdeveau@nationalpost.com