Automotive News NADA Show Daily - 2023 Day 2 - 16

16 * January 28, 2023
NADA DAILY: SATURD AY
QA& JAMES MORRELL
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KIA DEALER AD VISOR Y COUNCIL
Kia credits flexibility for snagging spot on podium
A
champagne toast is in order for Kia
America. The Korean automaker
pulled ahead of the industry at the
end of 2022, setting sales records
for December and the fourth
quarter, and logging only a slight annual decline
amid growing economic headwinds and a
down market.
And after a stretch of successful product
launches, including the EV6 electric crossover,
which won industry accolades and reached
20,500 sales last year, Kia is shedding its " discount
brand " skin, emerging as an innovative,
reliable, eco-forward carmaker.
Despite all the wins, the year had its share of
frustrations, according to James Morrell, chairman
of the Kia Dealer Advisory Council and
co-owner of Destination Kia in Albany, N.Y.
Morrell, 49, assumed leadership of the council
in 2019, stayed on through the turmoil of the
pandemic and is holding down the fort in the
aftermath, which for 2022 has primarily been
adapting to selling cars that consumers cannot
see in person or test drive.
Morrell credits Kia's flexibility as its secret
weapon as it fights industrywide supply constraints.
" Overall, Kia was able to overcome the
production constraints better than most other
manufacturers, " Morrell said. " They're very fluid
and they worked extraordinarily hard at
building what they could and found a way to
pretty much match 2021 sales. "
Rising interest rates coupled with plummeting
used-car values became a difficulty in the
second half of the year. " Consumers had reserved
cars months in advance and when they
came back to take delivery, the market had
changed. Obviously, we can control the price of
the car and help them out, but interest rates
and used-car values are out of our control, "
Morrell said.
Morrell spoke with Staff Reporter Carly
Schaffner about adjusting to the new normal,
EVs and what's ahead for 2023. Here are edited
excerpts.
Q: What has the inventory situation been
for Kia in 2022? How is it looking for
2023?
A: Kia did a really good job keeping production
up all year - getting us the cars that we needed
to at least maintain our volume. We saw a big
jump in inventory in the last quarter of the year.
I foresee in 2023 more inventory than in 2022,
but it still seems like there's a surprise every
week with production. But I feel very confident
that the Kia brand will grow in 2023 and we will
have more cars.
What has Kia told dealers about the return
to full production?
Kia says it anticipates producing more cars in
2023 and that it's made substantial investments
in Georgia and Mexico to make sure that those
cars get built.
That said, each production constraint has to
be managed individually. Sometimes production
shifts from Sportage to Forte, or from SX
models to LX models, depending on the given
supply constraints.
Kia's horizontal organizational structure allows
them to be flexible, changing production
on the fly. We've seen production numbers oscillate,
starting at 45,000, then dropping to
20,000, then going back up to 40,000. The configuration
of those units was dramatically different,
but that flexibility is what has been so
powerful.
How have Kia dealers been coping with
inventory constraints?
A lot of dealers had to buy their own vehicles
for customers to test drive because there
great value to consumers. As a result, we haven't
had any incentives for the last year and a
half, but as the supply and demand curve shifts,
certainly on specific models, Kia will slowly introduce
incentives.
In 2022, Kia had a 1.1 percent annual
sales decline against 2021 and set records
for December and the fourth quarter.
What do you expect for 2023?
The world is in such a state of flux, you never
know if we're going to have another five points
of interest rate increases, which will certainly
impact it.
That said, production for Kia will be up and
dealers are geared up to sell more vehicles. I do
expect Kia will sell substantially more vehicles
in 2023 than they did in 2022. Whether that's 5
percent or 20 percent is directly tied to the
health of the American consumer.
Kia's average transaction price has been
ticking up, and now higher interest rates
have caused payments to increase. Are
Kia dealers concerned how this will impact
value-oriented shoppers?
People have been operating in this extraordi "
AUTOMOTIVE
NEWS
Has Kia said if it will move
production of the EV9 to the
U.S. so it can qualify for the
$7,500 tax credit?
JAMES MORRELL
The original plan was to build it
in Korea. Kia has not announced
any new plans, but they have
discussed adjusting production
to adapt to the new IRA. What
that becomes remains to be
seen, but I don't see any way to
deal with the new law without
building the EV9 in the United
States.
weren't any on the lot, especially the hot products.
The
sales process also had to change because
you're selling a car that's going to arrive in 30,
60 or 90 days. That's been a big adaption for
both the dealerships and the consumers. Arrival
dates also are unreliable because of the logistical
challenges with transport. You could have
an ETA, but with rail interruptions, the lack of
truckers or port disruptions, it's difficult to keep
consumers informed on where their car is.
Dealers never had to do that before, and it's
been a challenge because this is a world of instant
gratification and consumers don't understand
why they can't have exact tracking of their
order.
How have Kia's sales incentives changed
during this time of depressed inventory
and how will they evolve as production
increases?
Sales incentives have always been dictated by
the intersection of supply and demand. When
the demand vastly exceeds the supply for a given
model, there are no or very limited incentives
and that's what we've seen for the last couple
of years. What Kia has done well is maintain
the pricing of their vehicles and present them as
a great value just at MSRP. The focus is really to
maintain the MSRP at a level that provides a
nary low interest rate environment for 20 years.
We got into an age of excess, and everybody
wanted the top line of every single vehicle and
everything they could get whether it was something
they needed. Now we're switching to a
scenario where consumers are more focused
on affording something that fits into their
monthly budget and a shift back to a normal
trim structure.
Interest rates are going to focus consumers on
what they can afford as opposed to what they
want. Kia is positioned well to take advantage of
that because the lower trims have so much value
baked into them. Every single trim is something
that a person would buy - there's no
stripped-down model.
How are Kia dealers performing from a
profitability standpoint? And is it sustainable?
Kia
has been in a golden age of product. The
Telluride, the new Sorento, the K5, the new
Sportage and the revised Seltos coming in 2024.
That momentum and groundbreaking vehicles
that are priced right have definitely helped
profitability - for both Kia and the dealers. For
the last almost two years, we've exceeded the
average profitability of the mass-market brands,
so that's been a wonderful position for dealers
to be in and vastly different from when we were
consistently under mass market.
Now dealers will have to adjust. The job for
Kia dealers is to keep our profitability at or
above the mass-market average. We've seen
shrinking return on sales in both the mass-market
average and in the Kia brand. Kia is still
above the mass-market brand average and our
goal is to maintain that.
It's now a question of what the dealers do with
the money they made over the last few years,
and how much they reinvest in their dealership
operations to increase the level of customer service.
We
saw a very good take rate on the new facility
program, and a lot of dealers upgrading their
facilities and functionality, adding personnel
and improving their processes. That [plus] the
guidance of the manufacturer should enable
Kia dealers to maintain profitability above the
mass-market average.
The Niro EV and the EV6 are on sale in
all 50 states. Were there any challenges
getting dealers ready to sell EVs?
Kia gave every dealer an opportunity to get on
board and the investment compared with other
brands was minor. There are so many areas
around the country where the electrical service
is not even equipped to handle anything more
than a Level 2 charger. When you start getting
into these fast chargers, the expense is no longer
the charger, it's upgrading your electrical
service.
That's something that could become prohibitively
expensive for a lot of dealers and that's
the challenge the U.S. is facing. How do you take
a grid like California's and double the electrical
demand without the entire state going up in
fire?
Are Kia dealers worried that sales of the
EV9 will be affected now that imported
EVs are no longer eligible for the $7,500
tax credit per the Inflation Reduction
Act?
There's a lot of trepidation from headquarters
and from the dealers on introducing a new,
much more expensive EV that was priced and
marketed based on the benefit of the $7,500.
The income limit component of the IRA is going
to dramatically change the picture of EV buyers
because, in general, they had a much higher per
capita income than the average consumer. They
were very astute and very focused on that
$7,500 rebate and now whether the car is built
in the U.S. or it's built overseas is immaterial to
this huge percentage of consumers. That's going
to be a change for the U.S. and this push toward
electrification.
What's still missing in the product lineup?
There
are two things the Kia dealers would
love to see. The first is a midsize pickup truck
and the second is a large SUV, even bigger than
the Telluride. Hopefully down the road, as electrification
resets the playing field, maybe there's
a possibility of a midsize pickup truck EV. That
would be an ideal place for Kia to enter that
pickup truck market.
What is Kia's position on subscription
services for capabilities built into the vehicle
or that can be enabled using software
after purchase? What do Kia dealers
think the dealership's role/piece of
that business should be?
There's so much you can do with telematics
today. Kia is making an investment in its Kia
Connect service to provide features that particularly
EV customers are accustomed to or expect
when they get into an EV. It's now a question
of pricing - will the consumer be able to
afford it, will Kia have to reduce the price or will
they just add more [functionality] to justify it?
Right now, dealers do not have a role [in Kia
Connect] besides setting it up for the customer
in a way that benefits them so Kia can sell them
the service. As dealers, we would like to see
more of a model of the old cell phone stores
where if you sold a subscription service, then
you got a piece as long as the subscriber stayed
subscribed.
What is Kia's position on over-the-air updates
for servicing vehicles? What do Kia
dealers think the dealership's role in
such updates should be?
We haven't dived into that as much because it
just hasn't been a reality yet, but we do want
things to be easily achievable for the consumers.
Having the ability to do small over-the-air
updates for software modifications that don't
require the consumer to come in is a benefit to
them.
We also have huge infrastructure built to service
Kia's cars, and I think we'll still have a place
down the road because over-the-air updates
can't fix everything. e
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Automotive News NADA Show Daily - 2023 Day 2

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