A New Beginning for Hyundai

By Dale Buss

Hyundai executives view their new Genesis sedan –- featured at the recent Detroit auto show -– as a velvet ramrod that will help them shatter the glass ceiling over their brand and move it decisively upscale.

The problem: The upscale ceiling over Hyundai may prove too resistant to the budget brand’s ambitious attempt to smash it and grab a piece of the luxury market.

Hyundai Motor America executives certainly haven’t lacked for expressed confidence in Genesis, their first rear-wheel-drive sedan and one that offers a new V8 engine. They made the car the star of their pricey commercials during Sunday's Super Bowl.

“Genesis provides a potent combination of performance, luxury and value,” said John Krafcik, vice president of product development and strategic planning, at the Detroit show, where the Genesis production made its North American debut after its global launch in Korea in December. “We think it has the opportunity to be an extremely disruptive force in the large sedan and near-luxury segments.”

Staking an Upscale Claim
The main case for Genesis is that it may well, as Hyundai argues, offer many of the benefits of luxury sedans for prices merely starting at $30,000. These start with the V8 engine, called The Tau, that generates about 370 horsepower, and also include features such as XM NavTraffic, Adaptive Front Lighting, Smart Cruise Control, electronic active head restraints and an audio system produced by a brand, Lexicon, whose only other automotive outlet is Rolls-Royce.

“While Genesis will compete for customers with cars like Chrysler 300 and Pontiac G8, our engineering benchmarks were Mercedes E-Class, BMW 5 Series, Infiniti M, and Lexus GS,” Krafcik noted.

Hyundai Vice President of Marketing Joel Ewanick believes Genesis is emerging precisely at a propitious new juncture the brand has been creating just for this moment. “The best part about Genesis is it’s going to take all the truths about Hyundai that we have working for us and put them in one spot, which will also elevate the entire brand,” he told AutoObserver at the Detroit auto show.

Ewanick maintained Hyundai’s recent “Think about it” advertising campaign has been helping elevate perceptions of the overall brand. “It erodes negative perceptions and attracts customers who want to be on the cutting edge and be part of the movement of a new brand –- so they can discover it before other people do,” he said.

“Our momentum is one of the strongest in the industry. And right now we’re putting out some of the best cars on the road.”

Hyundai’s steadily rising scores in independent indices of product quality will help. Even the prospect of recession and of a more sober-minded U.S. automotive consumer may play into the hands of Genesis, Ewanick said. “They’ll be adjusting their buying habits and looking for value for the money, not necessarily for the cheapest car,” he said.

Reasons for Skepticism
But there are at least a few substantial reasons some observers doubt Hyundai can pull this off, at least with Genesis –- or anytime soon.

For one thing, the decision to offer and promote a V8 engine –- the Genesis also offers 3.3- and 3.8-liter V6 engines –- may add little to the car’s appeal, given U.S. gasoline prices that seem locked in at around $3 a gallon. And the V8 requires the even more expensive premium gasoline.

One illustration of lesser interest in V8s lately, for example, is only 15 percent of visitors who are configuring potential new vehicles on Edmunds.com are including V8s these days, down from 19 percent two years ago.

Another obstacle is Hyundai already has proven it has difficulty selling larger and expensive models, including its Azera sport-utility vehicle and its Entourage minivan. In November, according to an analysis by Edmunds.com, the Suzuki SX4 and Forenza, among many others, outsold the Azera, despite its offering nearly $2,800 in incentives, according to Edmunds.com’s proprietary Total Cost of Incentives formula.

“That makes it odd that they would want to take it a step further right now and go further upmarket of Azera,” said Jessica Caldwell, an analyst for Edmunds.com.

So far consumer reaction to Genesis itself seems to be largely positive. “People like the styling and the vehicle,” said Art Spinella, president of CNW Marketing, a Bandon, Ore., automotive-research firm that surveyed 900 consumers in three cities recently using Genesis press materials Hyundai produced for the Detroit show. “But they’re not willing to spend that kind of money for a Hyundai.”

The brand-association challenge may rank as Hyundai’s largest, given its aim for Genesis. CNW’s focus groups liked Genesis a lot but expressed lots of resistance to considering a Hyundai as a luxury choice, Spinella said. At best, he said, Hyundai will have to be committed to growing Genesis sales steadily for four or five years before it could be assured of long-term success in positioning it as a luxury vehicle.

“Many luxury brands did well in 2007," added Caldwell. “But the ones that didn’t do as well, such as Acura and Volvo, don’t have as much brand prestige as others do, such as Lexus and Mercedes-Benz. That tells you that luxury buyers keep flocking to the same high-prestige brands. I just don’t think Hyundai is one, because luxury buyers are image buyers.”

Caldwell noted Subaru attempted to go up-market a few years ago with the B-9 Tribeca SUV and a redesigned Legacy/Outback “and lost their identity. It was a poor attempt and they have retreated from that direction and gone back to messaging mainly about all-wheel drive.”

And after trying to climb the upscale mountain with Genesis, Caldwell suggested, Hyundai may end up having to do the same thing.

Photos by Hyundai

1 - Hyundai's John Krafcik unveils the Genesis sedan at the Detroit auto show.

2 - The Genesis marks Hyundai's first use of a V8 engine.

3 - Hyundai positions the Genesis as offering the best in luxury at a lower price -- $30,000 or less.