When Hyundai Motor Co rescued Kia Motors Corp at the height of the Asian financial crisis in 1998, it could not have dreamed its adopted sibling, South Korea's oldest carmaker, would threaten to outgrow it.
Unlike Japan's Toyota Motor Corp, whose luxury Lexus brand has a separate identity from its mass market cars, Hyundai and Kia compete head-to-head across all segments from compacts to sedans to sport utility vehicles.
Kia's sharp new sedans, such as the K5, called the Optima in the United States, are taking market share in South Korea from Hyundai's Sonata models.
Sales of Kia's K5 sedan overtook those of the Sonata for the first time in 15 months in October in South Korea, and Kia, in which Hyundai has a 34 percent stake, will launch an up-market sedan called the K9 early next year targetting a segment between Hyundai's Genesis and Equus models.
The similarities in models and overlap in global markets have investors asking how Hyundai and Kia will manage the familial competition and should they work harder to develop distinct brand images.
"Hyundai and Kia clash with each other...What is Hyundai's strategy on Kia? Will it maintain it as a stable cash generator or expand the company further?" asked Ko Tae-bong, an auto analyst at Hi Investment & Securities in Seoul.
Hyundai's answer has been that it will hold the line and that the two companies will aim at different designs and brands.
"One of our group's biggest agendas is to differentiate Hyundai and Kia and minimise cannibalisation," an executive at Hyundai Motor told Reuters. "It is true that there is competition and cannibalisation between some models of Hyundai and Kia."
Due to the sensitivity of the relationship between Hyundai and Kia, the executive could not be named.
Sales figures from South Korea, Asia's fourth-largest economy and the biggest market for both companies, illustrate the dilemma faced by Hyundai.
Hyundai's domestic market share tumbled by 5.4 percentage points to 45 percent last year from 2009, while Kia's share rose 3.5 percentage points to 33 percent.
In major markets outside South Korea such as the United States and fast-growing China, the two companies are also competing head-to-head.
Kia's global sales volume jumped 52 percent from 2008 to 2010 to 2.1 million units and Hyundai's grew 30 percent to 3.6 million, with the two emerging as the biggest threats to their Japanese rivals. A Nissan Motor executive joked recently that he hoped the fast-growing South Korean competitors would "slow down."
Kia's sales account for nearly 40 percent of combined shipments. Between 2008 and 2010, Kia's stock price has jumped nearly seven-fold while Hyundai's has risen less than five-fold.
Kia's new sedans and their distinctive designs were created by Peter Schreyer, the father of Volkswagen AG's new Beetle and the Audi TT. Hyundai is also trying to keep pace on the design front with a edgier concept it calls "fluidic design," as it seeks to differentiate its offerings from mass-market alternatives. Its chief designer is a South Korean.
"The biggest differentiator will be design and future branding. Hyundai's brand will be more modern and premium and Kia will be more sporty. The two brands will be increasingly distinct from one other over time," the Hyundai executive said.
But many see few differences between the two brands yet.
"Hyundai and Kia do not seem to be different although they have their own positioning," said Kim Do-joon, a fund manager at Hanhwa Investment Trust Management, which holds Hyundai and Kia shares.
INVESTORS LIKE THE CONCEPT
The key factor overriding all concerns, said Michael Sohn, an analyst at Macquarie Research in South Korea, is that the combined market share of Kia and Hyundai is expanding. They are also able to cut costs by sharing platforms, R&D and components.
"Hyundai and Kia becoming one brand? That should never happen. Should Hyundai integrate the Kia brand, I would have sell ratings on the two companies...it is right for them to remain independent brands," he said.
Sohn rates both companies a "buy" and 31 analysts surveyed by Reuters rate the company a "buy" while 16 rate it a "strong buy."
"I think it is a case of the company management believing that it is better to have competing models...one plus one is going to be more than two. In other words, you're going to capture more customers than if you just have one model," said Geoff Boyd, an analyst at CLSA Ltd in South Korea.
"Over the last 10 years, a lot of people have asked why doesn't Hyundai just take over Kia entirely?...I don't think you want to mess with the current formula."
Although the two companies do overlap in many areas, in others they manage to avoid it. While Hyundai is chasing middle-class US consumers, Kia is trying to woo younger people buying their first car. Hyundai has a presence in India, while Kia does not and in China, Hyundai's efforts are centred on Beijing, while Kia is focused on Shanghai.
"By using the same platform, they are able to cater to a wider customer base...Hyundai might lose or win at the expense of Kia, or vice versa, but in a bigger scheme of things, the group itself is becoming more competitive," said one auto analyst who could not be named as he was not authorised to speak to the media.
Hyundai itself seems happy with the status quo.
"The (target) buyers are a bit different between Hyundai and Kia," Chung Jin-haeng, the president of Hyundai Motor, told Reuters. Hyundai and Kia have to nurture their own brand images."