Hyundai has been working its way out of the low-cost, low-quality basement for some time now, but even with the introduction of its Genesis luxury sedan, the brand has maintained a certain amount of working-class value appeal. That image has served Hyundai well over the last several years, when an economic downturn has sent record numbers of customers to Hyundai dealerships in search of a deal. But with a new upscale-looking design language transforming solid but uninspired offerings like the Sonata into memorable designs, Hyundai wasn’t likely to remain the scrappy, more-for-your-money underdog forever. And sure enough, Hyundai tells Automotive News [sub] that it’s getting away from the solid values of quality and practicality, and moving into the tenuous world of “premium” brand placement. Executive Vice President for global marketing Cho Won Hong explains
In the past 10 years, we have been very successful in building an image for quality. From now on, our direction will be defined as new premium or modern premium. We have been doing quite well in building good functional quality. But we still have some room to improve our emotional quality, and that is related to our brand strategy. That’s why we set modern premium as the brand direction for the next five to 10 years
And to some extent, Hyundai has little choice in the matter. Its Kia subsidiary occupies a kind of half-step lower in terms of “premiumness,” but as Kia rides the styling of Peter Schreyer to an ever-more upscale image, Hyundai has to stay one step ahead. Especially now that Hyundai has done the Genesis one better and is now selling its $65k Equus large luxury sedan. According to Cho, Hyundai’s goal is an “attainable premium” positioned above the Japanese mass-market brands, but below established luxury brands like Lexus and the Germans.
In pursuit of this new positioning, Hyundai plans on rolling out a new marketing effort, including a new slogan to replace “Drive Your Way.” In addition to marketing and ad efforts, Hyundai is also undertaking a renovation of the brand experience from the dealer level up, including:
— A “substantial increase” in marketing funding
— A new dealer and salesperson education program
— An improved global dealer showroom identity.
But none of these upgrades are free, and as a result, Hyundais will become more expensive. Says Cho
Obviously, there will be some price increase. If we deliver premium value to the customers and they recognize the value, then that’s the time we can increase our prices.
Which is not a horrible idea in the short term, considering that Hyundai’s inventories of its best-selling vehicles (Sonata, Tucson, Santa Fe) are below 30 days supply according to
AN [sub]. But the strategy isn’t as simple as raising prices either. Hyundai needs to offer the kinds of vehicles that command higher prices and leverage their improved brand experience, and in today’s market that comes down to crossovers. Hyundai’s USA boss John Krafcik tells
Bloomberg
Cars are where our dramatic volume gains came from, but we’ve been underrepresented on the growth side with crossovers and SUVs We have lots of upside opportunity on the car-based, light truck side of the market, in crossovers
In the short-term, Krafcik isn’t committing to new products, but says Hyundai needs to boost production of the Tucson, Santa Fe and Veracruz. But down the road, moving Hyundai upmarket will require a more thorough approach to the crossover market, a task it now lags behind Kia at.
And throughout all the talk of a newly-upscale Hyundai brand image there’s still one major contradiction at the heart of the matter. Hyundai’s global design chief encapsulates the current state of affairs well when he says
Our product is much better than our reputation. People are beginning to realize the real value.
Which is the ideal place for a value brand to be. But because Hyundai has been disciplined, and its vehicles are starting to sell out just as its value message is hitting its stride, does not mean that the move upmarket will be without its stumbles. After all, people recognize the “real value’ of Hyundai right now because the designs are fresh and the prices are still quite low. Will consumers continue to clamor for Hyundais when the prices creep closer to the Japanese competition? Hyundai’s maintained its value focus so well for so long, any move upmarket is a major gamble.
Related
Natural, obvious move. There was a time when a Lexus LS400 was about $10k-$15k cheaper than its German competition, but now they’re basically neck-in-neck.
I like to make VW analogies, since that’s a small (US) company that has tried a lot of different stuff in the past 20 years. I don’t think Hyundai has the dealer network–quality/amenity-wise–to handle much high-end traffic. Dealer networks are something it takes a long time to upgrade, so they’d better get cracking. All of the dealers in my area (right here in Hyundai’s American home state of Alabama) are barely converted from their days of selling bargain basement junkers (including “BOGO!”) just a few years ago.
VW at least upgraded most of their dealers before trying to sell the Equus…er, Phaeton here. I guess the old days of moving upmarket over 10-20 years are long gone.
Ash, I think the LS400 bases at $65K give or take compared to the BMW 750 swb which starts at $82K, the A8 which starts at $78K, and the S550 which is now $91K.
Paging Michael Karesh to the thread for a comparison of the equipment-adjusted price, but I’d argue that Lexus is still fighting this particular battle on price.
Jack, quick web search indicates you’re probably right (barring any weird Lexus equipment packages that nickel & dime owners). I had no idea the Teutonic trio had climbed in price so much in recent years–that’d be a Karesh comparo, indeed.
I wish Hyundai/Kia well on their plans. I still see all the local dealers advertising “No Credit, Bad Credit, No Problem.” It will be a climb up that mountain to change the attitude.
Well, Hyundai has been working on the dealership issue.
The next time you’re out car shopping, give the Hyundai dealership another chance. You could find a much larger building, or a completely different experience.
“Many Hyundai dealerships are poised for an upgrade. According to Automotive News, 40 of Hyundai’s 803 U.S. dealerships have changed hands already this year, with 19 of those sales occurring after September 1.
The trend? More experienced dealership owners—and larger dealership groups—with bigger budgets are paying hefty sums for smaller, underperforming Hyundai stores, to potentially replace them with larger, upgraded ones.”
http://www.thecarconnection.com/marty-blog/1051983_many-hyundai-dealerships-changing-hands-poised-for-upgrades
Still, this strategy is probably 5-6 years too early and they really need to start a Genesis premium brand if they want to be serious players in the luxury market.
– A “substantial increase” in marketing funding
– A new dealer and salesperson education program
– An improved global dealer showroom identity.
These are all things that DON’T add value to the product but increase the price. It seems a bad strategy to me for a brand that sells by providing value for a little less money. Resale value of Hyundai/Kia still is terrible despite the good cars.
If they add $ 1,000 to the Accent price and they add features worth $ 1,000 – that might work. But if they increase the price by $ 1,000 and all I get is a better show room, this won’t go over well.
Agreed. An extreme example would be the Hummer ‘premium’ dealerships. That didn’t go well.
Considering where they’re coming from (dealership wise) and the fact that they’re counting on lots and lots of conquest sales from other brands, they’re going to have to do something unless they want to lose sales to people over niggling things like “I don’t like stepping on 20-year-old gum stuck in linoleum tile” :D
Yes, it’s overhead, but there’s LOTS of overhead in every car purchase. Just look at a company’s entire lineup–the more profitable models indirectly feed the less profitable models, but that doesn’t mean Accord buyers ought to complain about the mere existence of the Ridgeline. The costs are spread out and diluted and all that really matters to consumers in the end is whether the vehicle is still a good value.
Selling something that looks more expensive than it is has worked for an awfully long time. This could be where Kia fits in, if they intend to raise sticker prices on their Hyundai line.
First, I think that when they say “premium” they don’t really mean what we think of as “premium.” It just means “not bargain basement.” Just like there are certain products that wealthy individuals will purchase because of the exclusivity their high price creates, there are certain products that people will not buy because of the low rent feeling their bargain price creates. I wonder how much of this is an attempt to make it okay for the next couple of brackets of car buyers up the scale to consider being seen driving around in a Hyundai. They’ve no doubt looked at the cars and thought it was a good deal from a purely mercenary standpoint, but decided in the end “I just can’t pull up to work in a Hyundai.”
My guess is that this is a fight against that dynamic more than trying to become truly “premium.”
Boost Veracruz production?
I think killing it with fire would be a better move…
What’s odd and I think potentially destructive for the Hyundai brand is that they are not just trying to compete with Japanese and European car makers on the mid- to high-end, but they are also competing with the Kia brand to see who can climb the aspirational ladder faster. This sibling rivalry could end up with both of them abandoning a blue-collar market that has been very profitable, as well as hinder the ability of both brands to compete effectively in the premium space by diluting their brand images.
There are two explanations for this: first that it is deliberate to make Kia solidly mainstream and Hyundai mainstream-to-upscale. Maybe Hyundai and Kia are both that confident of their abilities.
The other explanation is that internal politics is creating a corporate monster with two heads, which would be not good. From http://www.gerpisa.univ-evry.fr/rencontre/9.rencontre/S13Lee-Cho.pdf:
The third issue that is yet resolved in the Hyundai-Kia group is how to position the sales and production of car models between the two automakers. Now, Hyundai and Kia have maintained the duplicate business positioning of their car models. It is known that senior management at both companies has expressed a strong interest in keeping intact the existing business composition, covering the full range of car models, in contrast with top management’s long-term intention to separate business segments between the two automakers. In long run, it may be desirable that this auto group divides its business sectors and position the two automakers into those different business segments in order to create and meet various customer demands, as major Western auto automakers (i.e.: General Motors and Volkswagen) have done. Therefore, in case of trying to introduce a new group-wide business frame having each of the two automakers focus on different segments of auto sales and manufacturing, it may be another concern to top management of the Hyundai-Kia group to overcome senior management’s entrenched interest in the existing business practices of the two companies.
“More Premium” is a relative concept. Since Hyundai started as a brand that people bought because they couldn’t afford anything else, moving up-market to a point where people actually want to buy your product is probably a good idea. I don’t think that necessarily means that they want to compete with Lexus or BMW with their mainstream products – just be on par with the likes of Ford, GM and Toyota et al.
Hyundai’s “premium” aspirations seem to be about making products that sell on good design instead of price, not trying to become a top-tier luxury brand. Take the latest Sonata and Tucson, for example: they are no longer the cheap-feeling budget alternatives to their competition. In fact, they are arguably class leaders in quite a few ways, based on the reviews. Hyundai’s strategy these days seems to consist of merging European styling (which distinguishes them from the “beige” alternatives of Toyota, etc., and maybe even attracts a few “yuppies”), a good warranty, a good value, and rapidly increasing quality. Hyundai reliability still might not be as consistent as, say, Honda’s, but it’s getting there…
Hyundai should be careful in giving up their profitable situation. They managed to work miracles on their products in 20 years.
The Chinese will do it in less time and with better resources. The Chinese will be taking out the Hyundais and Kias and Suzukis and Mitsubishis first.
They will do it with known brands that they purchased, not building a reputation from scratch, too.
Hyundai needs to work the old Honda model. Offer easy to buy (minimal package/options to mix and match), cleverly engineered, well build, reliable, and sharply price cars that are perceived to be a step ahead of competitors.
Old Honda model? They’re still running it — on the Fit, anyway. I dunno about the 27 other models they offer…
+1 Jellodyne. Exactly.
I guess the Koreans realize the Chinese will eventually beat them on cheapness.
Also, similarly to the progression of making a car model bigger and more bloated because the people who bought it last time are older and wealthier now, perhaps a similar a similar dynamic is in effect with respect to brands: The people who bought Hyundais 10 years ago, are now older and wealthier, and it’s probably cheaper to keep an existing buyer from leaving the fold, than to constantly lure new blood in.
Am I the only one that thinks the pictured car ia ugly? Reminds me of a cartoon catfish, just add whiskers.
I think the idea is at least you have an opinion on the styling, be it good or bad. That’s not something you could say of the Hyundais of a couple years ago.
No, you’re not the only one. The Elantra looks clean enough, but this Sonata is only nice to look at while it’s moving. When it’s still, you get a chance to see how busy and overdone it is. Someone above mentioned the Tucson to be a class leader, which I would agree if it happens to be the ugly class.
Hyundai’s master plan is to crush Toyota, Honda and GM. As long as their pricing remains competitive and they continue to offer their long warranty with decently-styled offerings, it’s pretty apparent they’ll be successful. Resistance is futile!