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Hyundai's hot hand

May 10, 2011: 12:43 PM ET
Hyundai Elantra

The 2011 Elantra an inexpensive small car that doesn't look small -- or cheap -- and drives better than larger cars costing more.

FORTUNE -- With production by Japanese automakers still snarled by the after-effects of the March earthquake and tsunami, the Detroit Three are all but licking their lips in anticipation. They are expecting that shortages of Toyotas, Hondas, and Nissans on dealer lots will give them a once-in-a-generation shot at taking back market share and winning new customers.

But are they are the ignoring another Asian automaker whose production has been unimpeded by the disaster and now has more momentum in the U.S. market?

All but invisible to industry outsiders, Hyundai and its sister company Kia are blowing the doors off the competition.

In an overall U.S. market that is up 20% after the first four months of 2011, the Koreans have seen their sales jump 36%. Having sold 356,222 cars and trucks this year, they are just 4,662 vehicle sales away from displacing Nissan among the six U.S. top-selling manufacturers.

What's more, they are targeting what's become the sweet spot of the market: small cars. The compact Hyundai Elantra and midsize Hyundai rank as the ninth and tenth best-selling vehicles in the U.S.

The combination gives Hyundai a one-two punch comparable to the Toyota (TM) Corolla and Camry, or Honda's Civic and Accord.

Hyundais have always offered exceptional value, and I've raved about the Genesis, Equus, and Sonata. But now they consistently adding an element they didn't have before: style.

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Take the 2011 Elantra I drove this week. It is an inexpensive small car that doesn't look small -- or cheap -- and drives better than larger cars costing more.

Describing its design invites the cliché "looks fast while it is standing still." The sheet metal is wrapped tautly around the frame, and a crease stretching from the headlights upward to the rear door handle and tail lamps seem to stretch it length. The effect is to give the Elantra a swoopiness you don't often see in small cars. If you like the Hyundai Sonata, you'll love the Elantra: its proportion and cues are almost identical.

It is the view from behind the wheel that really sold me on the Elantra. The instrument panel, gauges, and switches are both stylish and functional, and look as if they belong in a much more expensive car. Hyundai deserves to rank with Volkswagen among the very best at interior design.

With that kind of appetizer, the main course comes almost as an afterthought. The Elantra delivers on the road with a smooth and willing 1.8 liter four-cylinder engine that feels peppier than its 148-hip rating would suggest. Zero to 60 miles per hour has been measured at 8.6 seconds. The EPA scores the fuel economy at 29 miles per gallon city/40 mpg highway. I was getting around 33 mpg after some fairly aggressive pedal work.

A mere $19,980 takes this Elantra package away. Add in a navigation system and the as-tested price for the Indigo Blue Pearl loaner came to $22,830. Another $5,000 wouldn't have shocked me. It's made at Hyundai's plant in Montgomery, Ala. though it isn't getting much of a lift from the cheap dollar; 65% of the parts come from Korea.

With that kind of value, it is not surprising that Elantra is outselling the Ford (F, Fortune 500) Fiesta more than two to one -- despite Ford's larger dealer body -- and beating Focus and Fusion as well.

Hyundai/Kia is no one-hit wonder. The next 18 months look like they will be strong ones. It is replacing 23% of its sales volume for the 2012 model year, according to the influential "Car Wars" report by Bank of America Merrill Lynch. That's higher than the industry average.

Better still, 45% of those new models are small cars and 34% are crossovers versus 18% and 25% respectively for the rest of the industry. Gasoline prices seem certain to bounce higher again, and Hyundai is well-positioned.

There is no respite from challenges in the auto industry these days and Elantra will not be coasting. Honda soon will be launching the redesigned Civic, a perennial best seller -- assuming its supply lines get straightened out.

But Hyundai will have gained some serious momentum by then, and every new customer will raise the visibility and standing of its brand a little higher. It isn't any wonder that top executives at General Motors -- and I'm sure at other manufacturers as well -- today fear Hyundai/Kia more than any other competitor. To top of page

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