Downturn Has Paid Dividends For Hyundai

By Peter Whoriskey
Washington Post Staff Writer
Tuesday, September 1, 2009

The recession precipitated one of the most tumultuous years ever for the U.S. auto business, but to Hyundai, it may have presented the perfect opportunity.

On Tuesday, when car companies announce their latest sales figures, the South Korean automaker that was once an industry laughingstock will announce its best retail month ever and that despite the vast shrinkage of the U.S. market, it expects this year's sales to exceed last year's.

Just as McDonald's and Wal-Mart have found favor from consumers during the recession, so, too, is Hyundai benefiting from its cut-rate allure, analysts said. Having largely shaken off a reputation for quality problems that arose after its U.S. launch in 1986, Hyundais look like a deal to many consumers.

"Value-focused brands tend to do better than premium brands during difficult economic times, and that's played to our natural strength," said John Krafcik, Hyundai's president in North America.

While the company is far from dominating the American market, the U.S. share of Hyundai-branded vehicles climbed from 3.6 percent last July to 4.6 percent this July. Globally, the Hyundai-Kia Automotive Group has jumped to fourth in sales, climbing ahead of Ford this year, according to the Automotive News Data Center.

Industry observers attribute the company's relative success this year to its reputation for value and the fact that it has been remarkably quick to exploit the openings created by the shifting market and turmoil at U.S. automakers.

When General Motors' vast troubles forced it to scrap its Academy Awards advertising, Hyundai moved in as the show's lone automotive sponsor.

When recession-beleaguered customers seemed too fearful to make a big purchase, Hyundai was the first of the major automakers to offer insurance so that a buyer who lost his or her job could return the car.

And when other automakers waited to take advantage of the federal government's "Cash for Clunkers" program -- waiting, for instance, for bureaucrats to spell out the rules -- Hyundai jumped in and beat others to the game, telling dealers it would advance them the money to buy up clunkers while they waited for government reimbursements to arrive.

Its Elantra was the fifth-best-selling car in the $3 billion federal incentive program. More than half of the company's sales come from cars produced at the Hyundai plant in Alabama.

"For Hyundai, a recession would be a terrible thing to waste -- and they're not," said Jeremy Anwyl, chief executive of the auto research site Edmunds.com. "They're delivering. They're having a hell of a year."

At the same time, the company appears to be at a crossroads.

For even as it is exploiting its reputation as a brand that offers a good deal, the company is attempting to promote a new luxury sedan, the Genesis.

In this, it is trying to copy the success of Honda and Toyota, which may have begun as cheap imports but have since moved into far pricier territory.

Krafcik said he believes the brand may be at a "inflection point."

Hyundai suffered from some shoddy car production during the '80s, and among many consumers, those troubles left a lasting impression. David Letterman cracked nationally televised jokes about the brand. Even now, when people buy a car online, Hyundai buyers take the longest time, presumably to gather information to answer skeptical peers, Krafcik said.

But since those troubles, Hyundais have garnered accolades for quality, and the company is now touting the Genesis as its answer to Mercedes, Lexus and Cadillac.

For some, a luxury Hyundai may seem like an oxymoron. But earlier this year, it won North American Car of the Year at the Detroit auto show, and that has helped boost sales, as well as the brand's image.

Even so, many analysts question whether Hyundai can at once be the bargain brand and one that provides luxury.

"Surveys show that people who buy Hyundai say their reason is 'good value for the money,' " said Phil Gott, auto technology specialist at IHS Global Insight. "But they're trying to get away from that because it is a difficult position to hold -- and the Chinese are coming."

Indeed, China's auto industry is a rapidly growing threat. This year, China is projected to displace Japan as the world's largest car producer.

For struggling U.S. automakers, the rise of Hyundai -- and eventually other foreign automakers -- represents more potential challenge on their home turf.

Hyundai has "established a foundation here, just as the Japanese did, and they have the basic blocking and tackling down," Gott said. "Now they're moving beyond that."


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