Automotive News - March 10, 2008 - (Page 26)

26 • MARCH 10, 2008 At hard-charging Hyundai, the plan is April Wortham awortham@crain.com 9% H yundai’s 2007 goal: Build 300,000 Sonata sedans and Santa Fe crossovers at its Alabama assembly plant. But sales were slow, and customers wanted Sonatas with four-cylinder engines — not the V-6s Hyundai had banked on. So the two-year-old factory shut down for 10 days last fall. The 2007 tally: 250,519 vehicles. Today’s market is even softer, and talk of a recession is growing. Hyundai’s game plan for 2008? Give the Sonata a face-lift, open a fourcylinder engine plant in Alabama this summer and build … 300,000 vehicles. Two years after Hyundai Motor Co.’s once-robust growth stalled, the company has yet to rethink its pedalto-the-metal strategy. Bosses in Seoul continue to set high U.S. goals in a quest to become the world’s fifthlargest automaker by 2010. Executives who fail to deliver are booted. “I’m sure they’ll continue the pressure,” says Bob Cosmai. He was ousted as Hyundai Motor America CEO in January 2006 after three years. His last year, sales climbed 8.7 percent. Among Cosmai’s predecessors, Fin O’Neill left voluntarily in 2003, while Robert Parker and Doug Mazza were fired. “It’s tough when you have very challenging goals that are perceived as unreachable,” says Cosmai. Hyundai’s year-on-year percentage sale growth in the U.S. market 8% 7% 6% 5% Hyundai hits hurdles Hyundai’s once-blazing U.S. sales growth sputtered in 2006 and 2007. Here are some of the reasons growth slowed. Chairman Chung Mong-Koo was imprisoned briefly in April 2006 as part of a corruption scandal, delaying decisions. The Korean won surged, pushing up car prices. A global plant-building drive overextended top management. As gasoline prices spiked, U.S. dealership lots had too many V-6s and too few 4-cylinder engines. NEWSCOM lot of weaker automakers that they were able to take market share away from, and that’s gone now.” To take on stronger rivals and keep growing, Hyundai has been moving the brand upmarket. But the strategy could backfire as American consumers shift toward small, fuel-efficient cars, as seen in strong recent sales of the Nissan Versa and Honda Fit. “We could lose ourselves by focusing on going upscale,” a worried Gary Micallef, chairman of the Hyundai National Dealer Council, told Automotive News last month. “We need to focus on not getting away from the entry-level vehicles.” But Seoul is focused on moving upscale with the Genesis. It is engineered to compete against the likes of the $52,000 Mercedes E class with a $30,000 price tag akin to the Chrysler 300C (see story, Page 27). The message of “great value for the money” served Hyundai well in the economy segment, says Phil Gott, director of automotive consulting at Global Insight Inc. But, he adds, “When you come in at that part of the market, it’s really hard to move up.” 4% Image issues Toyota and Honda are still perceived by many U.S. buyers to be the wiser purchase, says analyst Merkle. “You take a Honda home and people think, ‘Wow, that’s a smart buy.’ You take a Hyundai home and people ask, ‘Why couldn’t you afford a Honda?’ ” he says. Hyundai is obsessed with improving its image. Its Super Bowl “Think About It” ads encouraged consumers to consider Hyundai as offering more than cheap, entry-level vehicles. Hyundai already has scored some image gains. In the 2007 Best Global Brands study conducted jointly by branding consultancy Interbrand and BusinessWeek magazine, Hyundai ranked eighth among automotive brands, ahead of Porsche, Lexus and Nissan. The study seeks to determine how much a brand is likely to earn for the company in the future. Why sales do not reflect that brand strength is a point of frustration with Hyundai’s top management, says Frank Shin, former head of Hyundai’s Washington lobbying office. In light of strong scores on brand and quality surveys, he says, sales should be much higher than they are. “We have ambitious goals,” Shin says, “but they are fair goals.” It’s a tune that top bosses at other carmakers, notably General Motors, often sing. Our cars are getting better — so why aren’t our sales? But the tune can be out of synch with retail realities. Hyundai needs a U.S. management team to help it understand the idiosyncrasies of this market, says Cosmai, the former Hyundai Motor America CEO. “Sometimes there are people who think they know the market better sitting in Seoul,” he says. Yet in Seoul, few dare to tell hardcharging Chairman Chung that his goals might be, well, unrealistic. Chung’s edicts keep the company in overdrive. Don’t expect that to change. Anthony Moon, an auto analyst in Seoul with Nomura Securities, says of Chun: “I’m not sure he realizes the United States is a mature market.” c Gary Anglebrandt in Seoul contributed to this report 3% Unreachable? Hyundai has been knocking on the half-million door in the United States for several years. If sales were still growing as they did in the first half of the decade, reaching that level wouldn’t be a problem. But 500,000 wasn’t the target. Hyundai wanted sales of 1 million cars and trucks in the United States by 2010 and 550,000 by 2007. That didn’t happen. Last year’s goal was trimmed twice, to 500,000 — and Hyundai still fell short at 467,009. That was a 2.5 percent rise in a market that fell 2.5 percent. And Hyundai wasn’t giving cars away — transaction prices jumped 8 percent. General Motors or Ford would have been ecstatic with a year like that. But not Hyundai headquarters in Seoul. Under daily pressure from his absentee bosses to reach 550,000, marketing whiz Steve Wilhite quit as Hyundai Motor America’s COO in September. To some extent, Seoul was spoiled by the brand’s earlier gains. From a trough of 90,217 in 1998, Hyundai’s U.S. sales surged to 455,012 in 2005, an average annual jump of 29 percent. Powering the climb was better quality, coupled with a wider lineup that moved it into new segments. In that same period, total industry sales rose just 1.3 percent annually. Then Hyundai stumbled. In 2006, sales were flat, up just 0.1 percent in a market that fell 2.6 percent. 2% 1%

Table of Contents Feed for the Digital Edition of Automotive News - March 10, 2008

Cheaper small cars are part of VW's U.S. plan Ford offers to buy back 81 stores As dollar dives, automakers juggle global strategies Jaguar-Land Rover deal will be signed within weeks GM Planworks chief leaves Jacoby cites dealer role in VW makeover Slim fast Nissan: Electric car to get here in 2010 Family honor Suddenly, Arkona's a key software player Chrysler may build vehicles in Russia Congress may ban mandated arbitration Volvo signs dealers willing to exit Breeding a hybrid? Prius could be a brand Honda adds benefits for same-sex partners Top China execs to speak at conference Manual for Challenger waits until '09 Ex-Sonic president: Gulf States raided Sonic GM, American Axle: Ties that bind Boardroom coup ousts Chamco executives False data imperil all auto financing Dealers would suffer if Calif. gets its way GM, Ford should bring Euro cars here Fresh ideas are fine, but Chrysler must be wary We need that 10% of useful inventions Safety options: Let consumers decide Tire monitors are full of problems Germany's labor setup just doesn't work Alabama adding auto jobs more slowly Engineer Banks strives to sip fuel, burn rubber Toyota Financial takes risks to aid dealers Honda captive beefs up dealer training in leasing NADA releases 2 subprime guides ADP develops e-sales brochure Credit unions' share of auto loans declines Upgraded auction ID carries a fee Dealers At hard-charging Hyundai, the plan is simple: More — now Genesis sedan's assignment: Boost image of all Hyundais Allied will supply sensing systems to Magna Haldex opens Mexico plant Behr gets Nano pact How Tupelo talked Toyota into building a plant there Infiniti FX showcases new Nissan technology Ford may consider hatchback for U.S. Audi to launch A4 sedan, wagon together BMW M3 convertible Saab hybrid concept has solar roof panels Toyota could bring tiny 4-seater to U.S. Hummer to push H3 pickup's usefulness New look for the SL Tiny Nano makes big waves GM's Opel unveils small hatchback that could become part of Saturn line Who says Americans don't want hatchbacks? 9-3 will dominate Saab marketing Lutz: Green takes greenbacks Leap year added to Feb. misery 9 U.S. Toyota executives will retire Ford gives employees $1,000 bonus Denso picks new N.A. CEO GM extends buyout offers CAW OKs TRW pact Lampert ups AutoNation stake Sagging Chrysler boosts spiffs Feb. output is up slightly Buick offers the Cadillac of caddies GM's board: The royal robe fits Fritz Be it metal or men, Geneva all about style Raising the roof (price) Italian cops bust Fiero-aris Consumer Reports' verdict on Chrysler products: Eeeee-uuw!

Automotive News - March 10, 2008

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