By Hyunjoo Jin
SEOUL (Reuters) - South Korea's biggest automakers Hyundai Motor Co <005380.KS> and affiliate Kia Motors Corp <000270.KS> are targeting a 4 percent increase in global sales this year to a combined 7.41 million vehicles, their slowest growth since 2003.
The duo, which together ranks fifth in global car sales, is bracing for more modest growth after years of expansion at breakneck speed. Group chairman Chung Mong-koo has slowed capacity building to focus on improving branding and profitability in the hopes of better competing with rivals that include Japan's Toyota Motor Corp <7203.T>.
Hyundai Motor and Kia will pursue brand innovation by raising the quality of our vehicles, Chung, the 74-year-old chairman of Hyundai Motor and Kia's parent group, said in his annual speech to employees on Wednesday.
In line with that strategy, Kia promoted chief designer and executive vice president Peter Schreyer - known for his design contributions to the iconic Audi TT - to president late last week.
Earlier in 2012, Hyundai Motor poached ex-BMW designer Christopher Chapman to head its U.S. design center.
"Chairman Chung said our maximum capacity is 8 million vehicles. No more than that. Instead, he said we need to move upmarket and raise margins," a former top Hyundai executive told Reuters.
Hyundai Motor plans to unveil a luxury-concept vehicle at the upcoming Detroit motor show, a spokesman said, without elaborating.
The auto maker targets sales of 4.66 million vehicles this year, while Kia has set a goal of 2.75 million, according to regulatory filings.
But investors are concerned that growth momentum will wane with Hyundai Motor and Kia's go-slow strategy and the firming South Korean won.
Hyundai and Kia's industry-leading margins are being threatened by the strengthening won, which reduces repatriated earnings and pricing power. The South Korean currency rose 7.6 percent against the dollar last year, its biggest percentage gain since 2009.
By contrast, the yen is softening, which could tip the competitive balance in favor of their Japanese rivals such as Honda Motor Co Ltd <7267.T>.
Reflecting those concerns, shares in Hyundai Motor rose 2.6 percent in 2012 while Kia shares slumped 15.3 percent, underperforming the wider market's <.KS11> 9.4 percent gain.
Hyundai and Kia were the worst performing stocks among the world's top five automakers last year, according to Thomson Reuters data.
A dearth of new models for Hyundai Motor and Kia this year may also erode sales growth, analysts say.
The next generation of Genesis, Hyundai Motor's premium sedan, may be unveiled only in late 2013.
Kia Motors plans to launch a new Soul compact car this year, a spokesman said, without elaborating on possible rollout plans for other models.
Hyundai Motor and Kia sold a combined 7.12 million vehicles in 2012, up 8 percent from the previous year and better than their original target of 7 million.
The duo drove up sales in China when their Japanese competitors were hit by a backlash in a dispute over islands in the East China Sea last year.
In the United States and Canada, Hyundai Motor and Kia's sales have not been greatly affected so far by their November 2 admission that they had overstated the fuel economy of more than 1 million cars.
Hyundai Motor, which started new plants in China and Brazil in 2012, is in a better position to increase sales this year than Kia, which did not add any capacity at all last year.
The companies plan to release their global sales results for December later on Wednesday. Figures for the United States are due on Thursday.
(Additional reporting by Daum Kim in SEOUL; Editing by Ryan Woo and John Mair)