* Hyundai aims to improve brand in next Europe push
* South Korea-EU FTA to purge 10 pct import tariff
* Hyundai aims to be among top 5 Europe brands in long term
* Japan automakers say weak Korean won helping Hyundai
By Chang-Ran Kim and Hyunjoo Jin
GENEVA/SEOUL, March 1 Already hammered by a strong yen, Japanese automakers face an even tougher race in Europe against Hyundai Motor (005380.KS) this year as South Korea's top brand steps up its product drive and starts to benefit from a free-trade deal with the European Union.
Hyundai, the world's fifth-biggest carmaker along with affiliate Kia Motors (000270.KS), has replaced Toyota Motor (7203.T) as the biggest threat for global auto makers in recent years, as their inexpensive but high-quality cars attract an increasingly cost-conscious consumer base.
In Europe, considered the world's most competitive car market, Hyundai and Kia together outsold Toyota to become the biggest Asian group for the first time last year.
Hyundai alone has outperformed the market for 25 consecutive months, and momentum is growing, not slowing.
"They're fiercely competitive," Nissan Motor (7201.T) Executive Vice President Colin Dodge told a group of reporters at the Geneva auto show on Tuesday.
"On price, we can't compete in the U.S. or in mainland Europe with the Koreans. I don't think anybody can," Dodge said, blaming what he perceived as an artificially weak Korean won, at a time when the yen was near historic highs against the euro.
Japanese auto executives said the recently approved free trade agreement (FTA) between South Korea and the European Union would also hurt, giving Hyundai and Kia an automatic 10 percent price advantage with the removal of tariffs on imported cars five years down the line.
"I would hope that Japan would move towards similar FTAs, but I guess that's difficult," Mitsubishi Motors (7211.T) President Osamu Masuko lamented. "All we can do is lower our cost base as much as we can," he told Reuters.
Hyundai imports about a fifth of its cars sold in Europe from South Korea, as well as some components for the vehicles it builds in the Czech Republic.
With price competition already fierce in Europe, Japanese automakers said the only way to fend off the Koreans was to strengthen their brands and retain loyal customers for repeat sales.
"You can't play somebody else's game, so what we should do to compete with the Koreans is the same thing we should do to compete with Toyota or Opel or whoever we face in the market place," Mazda Motor (7261.T) Europe Chief Operating Officer Jeff Guyton said. "The only thing we can do is build our brand."
Honda Motor (7267.T), which enjoys relatively high customer loyalty around the world, echoed his view.
"We are concerned about them as a competitor," Honda Europe Executive Vice President Ken Keir told Reuters. "But are we losing business to them? No."
NEXT UP: BRAND IMPROVEMENT
That kind of loyalty is exactly what Hyundai will be going after with a global branding initiative this year.
The maker of the Elantra compact plans to increase marketing spending by 50 percent in Western Europe to polish its brand as it prepares to enter the full-sized car segment for the first time, with the i40 model, unveiled at the Geneva auto show.
Hyundai is targeting sales growth of 10.5 percent in Europe to 400,000 vehicles this year for a share of 3 percent in a market expected to shrink 3.4 percent. In the long haul, Hyundai wants to be among the top five manufacturers in Europe, the head of its European business said.
"Part of our objective for this year and beyond is to try and improve our brand margins as well as improve our sales," Hyundai Europe COO Allan Rushforth Rushforth told Reuters.
Rushforth admitted only 36 percent of Hyundai's customers last year were loyal customers -- in the bottom quartile of the industry. Any windfalls Hyundai gets from the FTA will be re-invested in the brand rather than be used to slash prices.
Analysts were optimistic about Hyundai's prospects this year.
"Hyundai's 10 percent growth in Europe is fully achievable this year," Korea Investment & Securities analyst Suh Sung-moon said. "Hyundai's brand image has improved significantly during the global financial crisis."
That optimism was entirely lacking on the Japanese side.
With the exception of Nissan, which was gaining market share with well-received products such as the Qashqai and Juke, Tokyo-based BNP Paribas auto analyst Andrew Phillips said Europe would continue to be a trouble spot for Japanese automakers.
"On the whole, I don't think you could expect that much growth, with the exception of Russia," Phillips said.
(Editing by Jane Merriman)