Is Hyundai’s Formula the Recipe for US Sales Success?

By Chris Haak

4.16.2009

2009-hyundai-sonataThe CarGurus Blog proposed this week that if you want to succeed in the auto industry, you should do try copying Hyundai.  Their post is focused mainly on the Hyundai Assurance program launched earlier in the year that allows buyers to walk away from their new car purchase for a certain period of time if they should lose their job.  Hyundai has credited this program with increasing showroom traffic and sales that have been up or at least flat relative to the corresponding period in 2008 – and that in an of itself is a big win for the Korean company.

At first glance, Hyundai’s and Kia’s US sales figures are better in 2009 than they are for nearly any competitor, including Subaru, which has also managed to stave off the depression in the auto industry for the time being.  However, Automotive Newshad an article this week about how part of Hyundai/Kia’s sales success in the early part of the year is due to them dumping greater percentages of their vehicles into fleet sales.  This begs the question:  are Hyundai/Kia really doing smart, great things, or are they just beneficiaries of the timing of certain external events?

My belief is that Honda and Toyota can offer a shorter warranty than Hyundai because they have a rock-solid reputation for reliability.  Personally, I’d feel more comfortable buying a Toyota with a 60,000 mile powertrain warranty than a Hyundai with a 100,000 mile warranty.  Manufacturers tend to spin long warranties as “standing behind their products,” but what they are omitting from the message is, of course, that they feel a need to stand behind their products in that way in the first place.  Long warranties are nothing more than a perception-battling tool for companies to use.  Are Chryslers with a “lifetime powertrain warranty” (to the original owner) built better than a Honda with a far shorter warranty?  Almost certainly not, but Chrysler felt that in order to combat its reputation for substandard quality, a statement like a lifetime powertrain warranty would resonate with consumers (it’s unclear whether it actually is doing so at this point, based on monthly sales results).

Considering that Ford and GM have both rolled out programs similar to Hyundai’s in recent weeks, it will be telling to see if they suddenly reverse their sales declines (and fare far better than the industry is doing, as Hyundai and Kia have done so far in 2009).  My guess is that they won’t see the same results, because Hyundai does not have the financial or even perception problems that these other companies have.

Let’s go back to the fleet sales issue for a moment.  Those who follow this industry know that fleet sales are generally bad, particularly those of the daily rental variety – the cars are abused, driven by multiple drivers with divergent driving skills, generally ill-equipped compared to retail versions, and dumped onto the used car market after a relatively short period of time with very few miles on them.  This dumping – and increased supply – then depresses resale values of all units of that model, including those sold at retail.  Fleet sales to government or industry fleets (such as cars used by traveling salespeople, or work trucks used by tradespeople) aren’t nearly as “bad” as daily rental fleet sales because those vehicles are held for several years and generally driven by the same individual all the time.

The aforementioned Automotive News articlenoted that 33.4% of Hyundai Division’s 95,854 first quarter 2009 sales were to fleets, versus 25.4% of the company’s 95,338 first quarter 2008 sales.  That means that there were 7,800 additional fleet sales in the first quarter, mostly taking up the slack from the Detroit Three automakers, who have drastically cut production (GM’s fleet sales were down 90%, Chrysler’s were down 75%, and Ford’s were down 65%).  It also means that Hyundai had about about 63,854 retail sales in Q1 2009 against about 71,138 retail sales in Q1 2008, which represents a decline of about 10.2%.  Still better than the industry, but the fleet sales are a pretty high percentage, and grew dramatically (over 32% growth year over year).

For its part, Hyundai attributed the spike in fleet sales to the timing of large fleet orders that were originally scheduled to be filled in April, but were pulled ahead into March.  Hyundai’s sales chief Dave Zuchowski attributed the retail [relative] success to high-profile advertising such as Hyundai’s Super Bowl and Academy Awards commercials, as well as to the Hyundai Advantage.  According to Hyundai Motor America’s acting CEO, John Krafcik, the Hyundai Advantage has driven about 10% of sales since its introduction in January.

My final analysis is that Hyundai and Kia have seen relative sales success in 2009 for a few reasons – some good (Hyundai Advantage, availability of credit from Hyundai Motor Finance Company, new models such as the Genesis), some bad (increased fleet sales, big dealer discounts), and some things that are happening beyond the company’s control (the fact that they are NOT GM or Chrysler, are purveyors of generally value-priced cars in a deep recession) to keep the company’s sales afloat.  Assuming that fleet sales decrease as promised, and that the impact of the Hyundai Assurance plan is somewhat blunted in the coming months as competitors such as GM and Ford mimic the plan, I expect Hyundai’s sales to fall more in line with the rest of the industry for the remainder of 2009.  Hyundai has made bold sales projections several times before based on previous successes.  They’re not making any predictions now, but I also think the rest of us should not expect them to continue this performance in perpetuity.

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Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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1 Comment

  1. Amusing how Hyundai has suddenly taken leadership in today’s times. And we’re playing catchup. Yet again.

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