Hyundai expands, despite downturn

South Korean carmaker takes aim at luxury cars buyers

CHRISTINE TIERNEY
The Detroit News

Last fall, as Hyundai Motor America's executives drafted their business plan for 2009, the economic indicators already were signaling a rough stretch ahead.

But the mood at Hyundai's American headquarters near Los Angeles wasn't gloomy. "We knew we had some really strong product coming out," said John Krafcik, chief executive of Hyundai's U.S. operations. "We focused on the opportunities that deteriorating economic conditions would provide us."

Hyundai's managers drew up a plan with a big marketing budget "to come out very, very strong in the first quarter and take as much market share as we could," he said.

A year later, the South Korean automaker has emerged as one of the top performers in a devastating downturn that drove U.S. auto sales to 30-year lows. Hyundai has expanded its market share by a third, to 4.4 percent, after attracting customers with reliable, affordable cars and innovative sales pitches. Its Assurance program lets people who lose their job return new cars bought in the past year.

Including U.S. sales of its fast-growing affiliate Kia Motors Corp., the Hyundai-Kia Automotive Group boosted its market share by more than two points, to 7.5 percent, overtaking Nissan Motor Co.

"Hyundai is one of the few companies that aggressively stepped up its marketing to take advantage of its competitors retreating in the weak economy," said Jeff Caponigro, president of Caponigro Public Relations Inc., with offices in Southfield and Tampa, Fla. "And it has worked."

Hyundai's bargain-priced Accent and Elantra cars attracted cost-conscious shoppers who have become aware of the automaker's advances in quality.

Yet Hyundai also succeeded in launching its first premium car in the U.S., the rear-wheel-drive Genesis, a richly appointed car with a starting price of $33,000.

The Genesis sedan and the $22,750 sports coupe have captured more than 6 percent of their segment in the U.S., and the sedan was chosen North American Car of the Year for 2009.

Now Hyundai is placing an even bolder bet. It plans to field a full-size luxury sedan in the U.S. market, in the $65,000-plus segment dominated by Germany 's premium carmakers and Toyota Motor Corp.'s Lexus LS models.

The Equus, a luxury car that Hyundai builds and sells in Korea, will roll into U.S. showrooms late next year.

The response so far is tepid. "They're a value-proposition story, and that's what they've always been," said Jessica Caldwell, an analyst at online auto research firm Edmunds.com. "Why switch when this is resonating well with consumers? It doesn't make intuitive sense."

Most analysts don't expect the Equus to fare much better in that rarefied segment than Volkswagen's splendid but slow-selling Phaeton. But they see little risk to Hyundai: It already builds the cars and, at least for now, it isn't investing in a separate premium distribution channel, like Toyota 's Lexus dealer network.

Big ambitions

Hyundai's aspirations may seem far-fetched to U.S. consumers who associate the company with affordable, entry-level cars.

But Hyundai, the world's seventh-largest automaker, is a proud company with big ambitions. Its hard-driving chairman, Chung Mong-Koo, 71, son of the founder, designated Toyota years ago as the rival to beat. And Hyundai has improved the quality of its cars at a pace that has, in turn, attracted Toyota 's notice.

In its home market, Hyundai is the dominant automaker after absorbing Kia in 1999. Abroad, it is expanding fast in North America and Europe and has a strong presence in India and China.

In 2008, a year when most carmakers lost money, Hyundai earned $1.15 billion. At the end of June, its cash reserves were nearly $4.6 billion.

"I'm absolutely certain," Krafcik says, "that we are the hardest working company on the planet."

And there's no tolerance for targets missed. Krafcik is the fifth top-ranked U.S.-based executive appointed in six years.

As well as increasing sales, Hyundai has been trying to nudge the Hyundai brand upmarket and distinguish it from Kia to keep the brands' vehicles from cannibalizing each other. According to online retailer Carsdirect.com, the strategy is working. Its data shows that while Kia customers cross-shop Hyundai models, Hyundai shoppers are comparing their vehicles against Japanese nameplates.

Not a single Kia model figured among the top five vehicles cross-shopped against the Hyundai Elantra, Sonata and Genesis cars.

"Most people have no idea that they're the same company," said Mark McCready, vice president at Carsdirect.com. "They've done a very good job of keeping those brands separate."

Hyundai's own data show that the Hyundai brand now attracts the same type of customer as the Japanese brands. The average credit score of a Sonata buyer is about the same as that of a Toyota Camry owner and higher than that of a Nissan Altima buyer. "That's huge for us," Krafcik said. "It wasn't that long ago that we attracted a different kind of customer than the Japanese Big Three."

Marlene Stern, procurement and billing coordinator at Princeton University, is a case in point. She was a longtime Toyota customer but she and her husband now own two Hyundais.

Last year, when Stern was shopping for a car that her college-age daughter also would drive, she looked at a $15,800 Elantra SE compact that had received a favorable review from Consumer Reports magazine.

Stern also looked at a used Nissan Sentra but settled on the Elantra because of its safety features, such as traction control. "I was so happy with the Elantra SE that I bought the Elantra Touring when it came out," she said. "Hyundai's making really good products. I think they're every bit as good as Toyota and Honda."

'Seeing a different customer'

Still, when Hyundai decided to launch the premium Genesis in mid-2008, some dealers had reservations.

"But the sales have been great. They've exceeded the manufacturer's and dealers' expectations and helped elevate the brand," said Scott Fink, chairman of the Hyundai dealer council and owner of two Hyundai stores in Florida.

"We're seeing a different customer. Generally speaking, these were folks who hadn't set foot in a Hyundai dealership."

This year, Hyundai displayed the Equus at the New York auto show and at the Concours d'Elegance in Pebble Beach, Calif.

As it prepares for the U.S. roll-out, dealers "aren't concerned because the company is making a very low volume projection," Fink said. "If the average dealer is getting a half-dozen a year, they should be able to handle that."

Hyundai hopes to sell between 1,000 and 2,000 Equuses a year.

Rob Mydzian of Buffalo, N.Y., former director of the Volvo brand in Ukraine, says Hyundai might challenge luxury brands -- and sooner than people expect.

Mydzian previously had considered the Hyundai brand to be below Ford or Honda, "but after driving a Hyundai, I'm shocked by how well put together it is."

He bought a Sonata in June. "I think in a couple of years, they'll be giving Lexus and Acura and Volvo a run for their money with their premium segment vehicles."

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