Hyundai Motor Co. had no choice.
Since the Korean automaker began selling cars in the United States in 1986, it was dogged by a reputation for poor product quality.
That remained the case, even though the quality and styling of the company's cars improved substantially by the mid-1990s.
There was one thing to do--cut the risk of buying a Hyundai by increasing the length and value of warranties on Hyundai vehicles.
That is what the company did earlier this year, when it began offering what was, until now, the longest and most comprehensive warranty package on new passenger vehicles sold in America.
The strategy worked. In fact, it's been so good that Hyundai now is attracting imitators.
Hyundai's manufacturer's warranty includes five-year/60,000-mile basic "bumper-to-bumper" coverage, 10 years or 100,000 miles on engine and transmission, five-year/100,000 mile protection against rust, and a five-year/unlimited mileage offer of roadside assistance for mishaps such as flat tires or empty fuel tanks.
That set Hyundai apart from automakers such as Toyota Motor Corp., who offer standard basic warranties of three years/36,000 miles, and drivetrain warranties of five years/60,000 miles.
But this week, American Isuzu Motors Inc., which sells only sport-utility vehicles, said it plans to one-up Hyundai with a 10-year/120,000-mile warranty on engines and transmissions, beginning with sales of Isuzu's 2000 models. Isuzu is offering a lower basic warranty of three years or 50,000 miles. But other aspects of the new Isuzu package are competitive with the Hyundai program.
"Manufacturers are beginning to expand their warranties because their vehicles are lasting longer, and because it's easier and cheaper to hold onto customers with longer warranties," said Christopher Cedergren, managing director of Nextrend, the consumer market research division of Maritz Marketing Research Inc. in Thousand Oaks, Calif.
Hyundai's competitors could read the bottom line. Hyundai's year-to-date U.S. sales are up 71.4 percent, according to the latest figures from J.P. Morgan Securities Inc. Also, at dealerships such as Fairfax Hyundai, more affluent customers are showing up in Hyundai showrooms.
"We're getting the people who once bought Toyota Camrys and Honda Accords," said Anthony Baker, Fairfax Hyundai's general sales manager. "They're coming in for the warranty. This has been a good thing," Baker said.
For Isuzu, going with a longer warranty wasn't a matter of trying to eliminate a perception of poor product quality, said Bob Reilly, chief operating officer of American Isuzu, the U.S. sales and distribution arm of Japan's Isuzu Motor Co.
"We've always had a reputation for good quality," Reilly said. "But we had to find another way to break through the clutter of advertisements for sport-utility vehicles."
Isuzu is a small automaker. Its bigger rivals, such as Ford Motor Co. and General Motors Corp., have spent hundreds of millions of dollars annually boasting about the toughness of their sport-utility vehicles in what the industry calls "dirt road and mud hole" advertisements.
"We don't have the money to compete with that," Reilly said. So, Isuzu decided to attract consumers by offering the longest new-vehicle powertrain warranty in America.
"That demonstrates in a tangible way the confidence we have in our product," Reilly said.
Perhaps. But are those super-long manufacturers' warranties just gimmicks?
Auto industry analysts and the leaders of a major consumer group don't think so.
"We're taking these warranties very seriously," said David van Sickle, consumer affairs spokesman for the American Automobile Association, the largest association of vehicle owners in the United States.
Hyundai, for example, "is offering a longer warranty because they've actually fixed their quality problem, and this is the only way they could demonstrate that they've done it," van Sickle said.
Nationally, owners of new vehicles tend to keep their cars an average of 7.5 years and their trucks for an average of nine years, according to the latest available industry figures on vehicle scrappage and turnover rates.
However, according to Washington-area auto dealers, local auto buyers tend to keep their new cars a shorter time, an average of 4.5 years.