Volkswagen, which aims to topple Toyota from to become the world's biggest automaker, sees Korea's Hyundai-Kia group as a bigger rival than the struggling Japanese company, according to Automotive News Europe.

"I have the most respect for Hyundai," VW CEO Martin Winterkorn told the German news magazine Focus, naming Hyundai's improved quality and the weakness of the Korean currency as reasons why Hyundai is on his mind. "Hyundai has now learned how to build good cars," added Winterkorn.

His comments didn't surprise industry watchers.

"He's right," said Stefan Bratzel, who heads an automotive research center at the Bergisch Gladbach University of Applied Sciences in Germany.

"Hyundai has enjoyed enormous growth in sales and profitability in recent years. Toyota should not be forgotten but Hyundai is a very serious rival."

Bratzel said Hyundai is strong in Asia, especially in India where it is the No. 2 automaker after Suzuki with a 16-percent market share, and in China, where the Korean company is enjoying fast growth.

IHS Automotive auto analyst Ian Fletcher said Hyundai and Kia can now match Japanese automakers for quality. "They are not just building cheap cars. They are building cheap, good cars," he said.

Hyundai has boosted sales in North America with innovative sales methods, Fletcher said, and its new Sonata sedan is doing well in the United States against Toyota's Camry and Honda's Accord.

In Europe, the Korean automaker benefited enormously from government (cash for clunker) incentives, which many consumers used to buy cheap, small cars such as the Hyundai i10.