A luxury roller-coaster ride

[YEH]

A luxury roller-coaster ride

Hyundai's strategy for Genesis was muddled from the start

April 30, 2018
Vince Bond Jr.
Hans Greimel

By 2022, Hyundai's Genesis brand should be sitting pretty, executives say, with a fully developed independent dealer network, a portfolio of at least six vehicles split among sedans, coupes and crossovers and annual U.S. sales of about 100,000.

That's nearly two decades after Hyundai started bandying about the idea of adding luxury vehicles to its value-priced product line and selling them through a separate retail channel.

The time in between will have been a bumpy, tortuous ride for Hyundai dealers, thanks to a strategy they have called indecisive at best and maddeningly muddled at worst and despite well-received products that can reasonably claim to compete with the German and Japanese giants.

Who gets the G70?

Even now, following the most clearly articulated plan yet for the structure of a distinct Genesis network and an announced product timetable, a big mystery remains: When the long-awaited G70 sports sedan — Genesis' purported BMW 3-series fighter — arrives in the U.S., who will sell it?

The car, offered with a manual transmission option for driving purists, made its U.S. debut at the New York auto show and is scheduled to launch this quarter, says Manfred Fitzgerald, the brand's global chief. But if the dealer body isn't selected soon, he says, it's unclear how the company will allocate the G70.

"That's a good question," Fitzgerald said. "We're taking it step by step, day by day, state by state."

I see that Fitzgerald is still sticking to the story of a 2Q launch.

"We got lucky" with that decision, John Krafcik recalled in a 2010 article written for Edmunds about Hyundai's foray into luxury. Krafcik was a product executive at Hyundai Motor America when the Genesis was introduced, and became CEO in November 2008. The Genesis launched just as the 2008 financial crisis was about to hit, and the decision spared dealers the expense of building new or improved showrooms in the lead-up to a punishing recession.

Gregory Mauro, owner of Gregory Hyundai in Highland Park, Ill., which sells Genesis models, says he recalls Hyundai raising the possibility of a separate luxury brand when the Genesis sedan hit U.S. stores.

"That timing would be terrible for dealers to have to invest in brick and mortar," Mauro said.

As had stated at the time, that decision was a correct one (1 relatively low volume model wouldn't have been able to support a new dealer network; and adding the Equus some time later didn't change the equation).

Plus, it was the height of the great recession and the credit markets were frozen - banks weren't lending and they certainly wouldn't have lent $$ to build an auto dealership (w/ 1 model).

By 2014, Hyundai still was preaching the benefits of having luxury products alongside mass-market options. Zuchowski, Krafcik's successor, said around 45 percent of Genesis sedan sales came from current Hyundai owners who wanted to graduate to something more upscale. In addition, 55 percent of Genesis sales at the time were conquests.

"In certain markets, the vehicles were selling comparably to German or Japanese luxury vehicles. That gave them the confidence," DiFeo said. "And hearing what consumers wanted as far as an expanded lineup, and knowing that to have an expanded lineup, that a separate luxury channel probably made the most sense."

There was a plan at that stage to eventually split off Genesis' retail channel as well, said Fitzgerald, a former Lamborghini executive who was tapped as global brand chief in December 2015. But the "timing was not clear or hashed out in full detail."

The thinking, he said, was that the break would happen "much further down the line," after Genesis had fleshed out the full lineup. But some executives argued that waiting that long would make a split that much more complicated, with dealers more deeply invested in the brand.

This is why the (current) plan is to sell the G70 and other '19MY models only at Genesis dealerships; problem is, will there be enough up and running to not put a strangle-hold on G70, much less G80 and G90 sales.

Also the reason why having already sold other models under the Genesis brand would have been a bad thing.

Zuchowski, a longtime hero of the dealer body, was fired in December 2016, and his post remained open for nearly nine months. It was during that span that Genesis leadership delivered a bundle of surprises to Hyundai dealers: Genesis would get its own retail network much sooner than planned. It would be much smaller than they expected — only about 100 stores nationwide. And many dealers who already carried Genesis products would be left out of it.

Hyundai dealers now will close the decade trying to rebalance themselves after years of mixed messaging and unclear directives. They'll gain a new crop of crossovers in popular segments but lose the halo vehicles that brightened their showrooms.

Which is likely why Hyundai is contemplating bringing back the Azera under its other nameplate (Grandeur).

One Southern U.S. dealer thinks there must be a better way. He invested $100,000 in showroom enhancements and training to qualify to carry the initial Genesis products and was looking forward to selling the brand for years to come, having bought into Hyundai's line that luxury buyers don't care about cappuccino machines and marble floors.

Then Genesis buried his hopes when it said it would split off into the smaller network of around 100 stores, mostly in more urban areas. He doesn't understand how Genesis will compete with the likes of Mercedes-Benz and Lexus when "roughly half" of states won't have a dealership.

Which is why have serious concerns about the planned dealer network originally consisting of only about 100 or so dealerships.

Many markets will be left out and even if some buyers are willing to travel a longer distance to purchase a Genesis, how would the valet service thing work out financially? (Suppose there will be a distance limit, if there isn't one already.)

Think a modified version of the Zuchowski plan would work better.

In the meantime, Zuchowski was telling Automotive News that Genesis likely would operate under a hybrid model varying by market size. Some Genesis stores would be completely independent, while some would have separate sales facilities but shared service. Others, he said, would continue to share showroom space with Hyundai.

No sharing of showroom space, but for smaller markets (smaller cities in areas less prone to purchase lux autos, in particular imports) - don't see why the biggest/nicest and strongest Hyundai dealerships can't just build a separate facility for a showroom (and customer lounge) for Genesis while sharing service bays (w/ maybe the understanding that as the market for Genesis vehicles grows in the area, will have to eventually build out a separate Genesis store).

There are plenty of Cadillac stores adjoined to either Buick/GMC or Chevy (as well as Lincoln/Ford) and there are even a couple of Lexus stores which share service facilities with a neighboring Toyota store (owned by the same dealer group).

He would have preferred for the Genesis sedan, now the G80, to remain in Hyundai's lineup and serve as the flagship for the brand instead of being recast as a model for a separate luxury line. Then, he said, a high-end crossover could have been Hyundai's flagship utility vehicle, solidifying its premium lineup.

Something like this was not going to happen.

Fitzgerald said he expects to complete the dealer selection by the end of the year. Dealers who are awarded franchises will have to build or renovate stores to sell Genesis vehicles only by the end of 2020. The new stores must be operational on Jan. 1, 2021, and can't share anything with any other brand.

If that's the case, don't see how they can stick to their plan of selling the G70 and '19MY G80 and G90 at Genesis stores.

Genesis' utility vehicle timetable is still on track despite the U.S. dealer shuffle. Its first crossover, the GV80, is coming at the end of 2019 or in early 2020. That will be followed by the smaller GV70 a few months later.

Would be something if the GV70 launches only a few months after the GV80.

 

[Mark_888]

You left out some quotes from the article that shows just how incompetent Genesis Motors management has been, and how poorly managed the rollout of the brand has been in the USA:

Fitzgerald [Global Head of Genesis Motors] says the restructuring of the U.S. dealer network is a work in progress and U.S. franchise laws are more complicated than expected. The brand ran into a rocky situation in Louisiana last year, when Genesis had to abruptly stop selling because of licensing issues.

"Everybody knew this wasn't going to be an easy process," he said. "Everybody knew that from the get-go. How complicated it can get, and how hairy it can get, maybe not so."

​

What does he mean by "U.S. franchise laws are more complicated than expected"? Didn't they attempt to understand USA franchise laws before they made the decision to split off a separate dealer network to sell the Genesis brand? They have over 800 Hyundai dealer franchises in the USA. How could they have not known? Sounds like a half-arse rollout and incompetent management.

 

[EdP]

Which is likely why Hyundai is contemplating bringing back the Azera under its other nameplate (Grandeur).

No sharing of showroom space, but for smaller markets (smaller cities in areas less prone to purchase lux autos, in particular imports) - don't see why the biggest/nicest and strongest Hyundai dealerships can't just build a separate facility for a showroom (and customer lounge) for Genesis while sharing service bays (w/ maybe the understanding that as the market for Genesis vehicles grows in the area, will have to eventually build out a separate Genesis store).

Azera was never a big seller. I thought the G70 was a replacement for it under a different brand and mission. I guess is is an appeasement.

The present limit for concierge service is 50 miles With two dealers per state, that is quite limiting in a long or lengthy state. I'm thinking big gaps in CA, FL. It would make sense to have Hyundai dealers in some areas to at least do the service. Maybe a showroom if they are no closer than X miles from a stand alone Genesis dealer.

 

[Mark_888]

Azera was never a big seller. I thought the G70 was a replacement for it under a different brand and mission. I guess is is an appeasement.

The present limit for concierge service is 50 miles With two dealers per state, that is quite limiting in a long or lengthy state. I'm thinking big gaps in CA, FL. It would make sense to have Hyundai dealers in some areas to at least do the service. Maybe a showroom if they are no closer than X miles from a stand alone Genesis dealer.

Azera is much larger than G70, and of course it is FWD.

There aren't going to be two dealers per state, as many states will get zero.

I don't think CA will be a problem. They just need dealers in Bay Area, LA, and San Diego, although probably more than one dealer in each market.

Florida just needs Jacksonville, Tampa, and Miami. Maybe Orlando. Again, more than one dealer per market in some of those like Miami area.

But obviously, they will lose sales with only 100 dealers, because there are a lot people who don't live in those urban areas.

 

[PMCErnie]

Wake me when the FUBAR is over. Still, it's nice to see folks like YEH waking up and smelling the coffee.

This dealer knows best. Genesis should listen to him pronto.

"One Southern U.S. dealer thinks there must be a better way. He invested $100,000 in showroom enhancements and training to qualify to carry the initial Genesis products and was looking forward to selling the brand for years to come, having bought into Hyundai's line that luxury buyers don't care about cappuccino machines and marble floors.

Then Genesis buried his hopes when it said it would split off into the smaller network of around 100 stores, mostly in more urban areas. He doesn't understand how Genesis will compete with the likes of Mercedes-Benz and Lexus when "roughly half" of states won't have a dealership"

 

[YEH]

Azera was never a big seller. I thought the G70 was a replacement for it under a different brand and mission. I guess is is an appeasement.

The present limit for concierge service is 50 miles With two dealers per state, that is quite limiting in a long or lengthy state. I'm thinking big gaps in CA, FL. It would make sense to have Hyundai dealers in some areas to at least do the service. Maybe a showroom if they are no closer than X miles from a stand alone Genesis dealer.

While the Azera never was a big seller, it did sell around 20k/yr w/ its sales height being nearly 27k in 2006.

Part of the reason for relatively low sales of the Azera (aside from Hyundai never really advertising it) is that it wasn't differentiated enough from the Sonata (not much more room w/ the interior being better, but not worth the premium); the current Grandeur is a much better vehicle (if it ends up coming over).

 

[EdP]

Part of the reason for relatively low sales of the Azera (aside from Hyundai never really advertising it) is that it wasn't differentiated enough from the Sonata (not much more room w/ the interior being better, but not worth the premium);

Exactly why in 2013 I bought a Sonata instead. It was like paying $3000 for a power passenger seat, not much else. In 2015 I passed it to go to a Genesis.

 

[Sal Collaziano]

I think they're going to have to keep prices down and simply sell these cars out of Hyundai dealerships. What else can they do? The cars need to sell on their own merits - and service needs to be as good as possible within Hyundai dealerships. Intelligent people with common sense need to be employed at every dealership specifically to work with Genesis buyers. If they can get that right - it should buy them enough time to get their separate dealer network setup...

 

[Mark_888]

Part of the reason for relatively low sales of the Azera (aside from Hyundai never really advertising it) is that it wasn't differentiated enough from the Sonata

I actually test drove one in 2009, and it had the nimbleness of the Exxon Valdez oil tanker. That's why it didn't sell IMO.

 

[PMCErnie]

I actually test drove one in 2009, and it had the nimbleness of the Exxon Valdez oil tanker. That's why it didn't sell IMO.

True, but the more recent "last generation" Azera was much improved vs. that 2009 model. Actually, it was quite a nice car, but it was sort of invisible in its market slot between the Genesis and the Sonata. ALSO, the Kia Cadenza, its cousin, proved to be more attractive to buyers, although even that didn't sell in huge numbers either.

______________________________

Help support this site so it can continue supporting you!

 

[Sal Collaziano]

I actually test drove one in 2009, and it had the nimbleness of the Exxon Valdez oil tanker. That's why it didn't sell IMO.

Nobody shopping for a Hyundai Azera is looking for a nimble ride. It didn't sell for other reasons. The Cadenza was probably one of them.

 

[YEH]

Wake me when the FUBAR is over. Still, it's nice to see folks like YEH waking up and smelling the coffee.

Uhh, I was the one ringing the alarm bells that the 100 dealership plan would seriously impede sales (missing numerous smaller markets) and that at the speed of which they were going in choosing the dealerships (much less getting them up and running), would really hurt the launch of the G70, on top of G80 and G90 sales dropping precipitously.

This dealer knows best. Genesis should listen to him pronto.

"One Southern U.S. dealer thinks there must be a better way. He invested $100,000 in showroom enhancements and training to qualify to carry the initial Genesis products and was looking forward to selling the brand for years to come, having bought into Hyundai's line that luxury buyers don't care about cappuccino machines and marble floors.

Problem is that many lux buyers do; but more importantly, too many Hyundai dealerships don't know how to sell lux autos and even for the ones which sell the G90 - there are ones which don't proffer the level of service/customer satisfaction that the better ones.

There are good and bad Hyundai dealerships; problem is, there are too many potential buyers who have gotten a bad taste in their mouth due to their experiences w/ one of the bad ones.

I actually test drove one in 2009, and it had the nimbleness of the Exxon Valdez oil tanker. That's why it didn't sell IMO.

Well, it's not buyers in that segment are looking for something nimble (granted, even for the segment, the TG Azera was a bit unwieldy, but could also say the same for the Sonata of that era).

And that TG Azera you test drove in 2009 is the same gen as the 2006 Azera which gave the Azera its best sales year in 2006 (26.8k).

 

[PMCErnie]

It's easy enough for roving corporate teams to visit every dealership and train personnel in the proper procedures and corporate culture. I did it myself for a time in another industry. Certainly it's much easier than "throwing out the baby with the bath water," as Genesis was attempting to do with the silly "100 Dealer" pipe dream.

My work in this area was during the "Think Excellence" days in the early '90's. Basically, every employee needs to learn, or at least know about, the ways to pamper customers and to provide exceptional service. After the training is completed, those who cannot muster the necessary skills are removed.