(FORTUNE Magazine) – Flush from a foray into Canada, Hyundai Motor Co., South Korea's largest automaker, has announced plans to invade the United States this fall. Its secret weapon for the American market will be a front-wheel-drive subcompact priced in the $5,000-$7,000 range. The car, yet to be named or seen, will replace the rear-wheel-drive Pony that was a hit in Canada last year. Hyundai had expected to sell 5,000 Ponys to Canadians but ended up selling five times that number. The company is setting a target of 120,000 for the new model in the U.S. and Canada in 1986, marketing the car in the niche above the lowest- priced Renault Alliance and Chevy Chevette. Hyundai executives claim their car will compare favorably with the more expensive versions of the Japanese Honda Civic and Mazda GLC. Says Gregory Warner, group vice president in charge of marketing and finance: ''By being above the lowest-priced cars but below the Japanese, we think we'll have some volume.'' Auto industry analysts say the Korean manufacturers can match the Japanese in production costs--about $1,600 less per car than American manufacturers. Korean auto workers make about $2 an hour, compared with $10 for the Japanese, but the wage differential is offset because Korean manufacturing is less efficient. Hyundai could be driving smack into a storm of price cuts, however. U.S. automakers have pretty much conceded they can't build cheap subcompacts. The big three automakers are buying into and cutting joint venture deals with Japanese, Taiwanese, and another Korean automaker, Daewoo. Some of these products could reach U.S. shores next year. A $3,999 Yugoslavian subcompact is about to be marketed in the U.S. And if the ''voluntary'' restraints on Japanese imports are loosened a lot or abolished, Hyundai could find itself locked in a traffic jam of cheap imports and price cuts. ''Right now the conditions are ideal for bringing in a Hyundai,'' says Leonard Sherman, automotive specialist for Booz Allen Hamilton, a consulting firm. ''But that could change by the time it hits the market.''