How do think Hyundai is making money with current biz model?

[Glashub]

I've been wracking my brain about this. They deliver a quality car with state of the art features for thousands less. Are they taking a smaller margin in the hopes of amortizing with volume? Are they paying their workers that much less? I read where GM is saving costs on the Aveo replacement by using 1/3 the normal rust proof coat. Is Hyundai cutting corners?

So, since I can't figure it out, I thought I'd turn to people smarter than me...you folks. What are your thoughts?

 

[Junkie49]

I've been wracking my brain about this. They deliver a quality car with state of the art features for thousands less. Are they taking a smaller margin in the hopes of amortizing with volume? Are they paying their workers that much less? I read where GM is saving costs on the Aveo replacement by using 1/3 the normal rust proof coat. Is Hyundai cutting corners?

So, since I can't figure it out, I thought I'd turn to people smarter than me...you folks. What are your thoughts?

Have you ever thought of it this way?
"Other car makers are putting premiums on everything incl. options, trims etc."
I cannot say for all the makers but if you try to "build" BMW cars, options starts to get expensive real fast.

Not sure about paying workers less but unless genesis is made here (which it isn't), I am sure korean workers work for less wages compared to Hyundai workers in Alabama. I think Genesis and Equus might do very little for Hyundai in making money. Volume and profit wise, their value cars (eg. Sonata) do much better. Genesis and Equus is there to up their image.

Now I don't know about their build quality, maybe issues here and there but it was called average or above average in somewhere.

 

[Mark_888]

Hyundai expects to manufacture 3 million vehicles in 2011. So obviously the Genesis and Equus sold in the US are a very small slice of that. Hyundai is selling these two cars at a discount to what they sell them for in Korea (in 2009 it was estimated that an equivalent Genesis model sold for $17K more in Korea than in the US, and some were purchasing them in the US and importing back to Korea). This kind of initial discounting is similar to what Lexus did when they first came out. But Hyundai has one other motive, and that is to build the brand awareness and respectability of the Hyundai brand in the US (which is why they have the "H" logo in the US) so they can sell boat loads of Sonatas, etc. I would not say Hyundai is losing money on Genesis and Equus in the US, but probably not making much right now, although the price has started to creep up from 2009 prices (especially with the packages).

 

[YEH]

Taking into account inflation, the price of the Equus is on par with what the price of the LS400 was for its first few years, and Hyundai didn't have to spend on the putting together a new dealer network, much less spend on advertising.

I agree that Hyundai isn't losing money, but probably only making a modest profit.

As for the KDM models being more expensive - some of it is due to the KDM models being better equipped and some has to do w/ the German competitors being more expensive in Korea than here in the US, hence, Hyundai can price accordingly.

During the past month, Hyundai sold worldwide 1,680 units of the Hyundai Equus/ Centennial and 5,618
units of the Genesis/Rohens (no breakdown btwn sedan and coupe).

 

[Glashub]

Thanks for sharing your thoughts.

 

[Sayantsi]

I wouldn't say cutting corners, but Hyundai is sticking to simple tenets when designing and building its luxury cars. It simply leave out stupid bells and whistles that the Germans (especially) and Lexus have been overloading their cars with over the past decade.

Do we really need two reverse gears in a car? No.

Do we really need a 7-way adjustable suspension mated to a 5-way shift pattern? No.

Do we need motorized doors and handles that will pop out and pull shut every time you open a door? No.

Do we really need heated door handles? No.


See where I'm going here? The luxury car companies have, in an effort to provide what I guess is considered "luxury", loaded their cars with a long list of crap we don't really need, just whiz-bang bling. Hyundai has stuck to the basics of what a luxury car needs and its costs are simply lower. Don't add extra crap to a car, it will cost less.

Also, there's the huge Korean subsidies for them to operate in their home country...

 

[Glashub]

Wow, you guys have all made some good points I hadn't thought of. Junkie and Sayantsi seem to agree that other car companies are adding and charging for too many premium add on's. I like Marks thinking too. As I am in marketing, it is true that the smarter companies I work with think long term and do understand that branding (or the first touch) will lead to sales down the road. Pew studies indicate hat it takes 6 exposures to a logo or a message before the average end user is branded.

What I don't understand is the talk about how car companies don't make much margin selling the cars but in servicing them. That would include the Germans too. I remember reading an article where the CEO of MB admitted that because of German union costs the company had to use cheaper and less effective glue, etc.

 

[Mark_888]

What I don't understand is the talk about how car companies don't make much margin selling the cars but in servicing them. That would include the Germans too. I remember reading an article where the CEO of MB admitted that because of German union costs the company had to use cheaper and less effective glue, etc.

I think that is true of dealers (making most of their money servicing cars) but not sure about auto manufacturers.

 

[Sayantsi]

A Toyota Camry for example is a low profit margin car, but when Toyota can sell it as a Lexus ES with upgraded components, the profit margin soars. Lots of lux cars find profit in the baubles and bolt ons in the options list. I believe it costs a manufacturer less than $50 more per unit to put in leather vs cloth seats, but its usually a $300-600 option, for example. At its most basic a Camry needs to be priced in the low $20ks with a slim margin, but with some dressing up, Toyota can sell it for ~$50k and have a fatter margin. That's one side of things at least.

Car companies really make their money from the dealers buying the product, and dealers make it from the service departments. Companies like Lexus have aggressive service intervals - one reason why their reputation for reliability is so high imo is that Lexuses are worked on more often than average. The flip side to all this is higher service costs footed by the car owner, paid to the service depts.

 

[izhd]

BTW, in Russia Genesis 3.8 2011 costs $82,158.63
How about that?
It's roughly the same price as MB E300 & BMW 528i

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[Mark_888]

At its most basic a Camry needs to be priced in the low $20ks with a slim margin, but with some dressing up, Toyota can sell it for ~$50k and have a fatter margin.

Nonsense. Either you are saying that the ES costs ~$50K, or you saying that GS (which can go up to $50K) is just a dressed up Camry, both of which are ridiculous. ES350 MSRP is $37K ($42K loaded). Probably easy to get $2-3K off via a buying service.

Companies like Lexus have aggressive service intervals - one reason why their reputation for reliability is so high imo is that Lexuses are worked on more often than average. The flip side to all this is higher service costs footed by the car owner, paid to the service depts.

I don't think so. Lexus dealer hourly labor rate is not cheap, but the actual service requirements for the ES are about the same as the Camry and not that complicated (unless one falls for the 15K, 30K, 45K, etc service interval "packages" sold by dealers, but not required by maintenance schedule). The reason that Lexus and Toyota are reliable is the design, not the maintenance done by the owner.

If Toyota doesn't make money on the Camry, the I would assume that Hyundai doesn't make money with the less expensive Sonata? But in fact, both companies make money on these cars. Yes the margins are higher on a luxury car, but R&D, etc has to allocated to the cost of a fewer number of cars as compared to high volume cars like Camry, Accord, and Sonata, so they don't need to make as much money on per unit on high volume cars.

 

[Sayantsi]

No Mark, you missed my point entirely.