Clunkers program helps fuel surge
BY TIM HIGGINS
FREE PRESS BUSINESS WRITER
Buoyed by improved quality, sharp marketing, impressive styling and strong sales, Hyundai Motor Co., along with its affiliate Kia Motors Corp., is now positioned to go head-to-head with the world's largest automakers.
Fueled in part by the cash-for-clunkers program, sales for Hyundai and Kia skyrocketed 47% and 60%, respectively, in August, compared with the same period a year ago. It was a standout performance.
"This is potentially a game-changing year for the brand," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates.
The Korean group's performance has been so strong that it is nipping at Chrysler's heels, threatening its U.S. market share.
Hyundai and Kia together grabbed an 8% share of the U.S. market in August, beating Chrysler's 7% market share.
Jeremy Anwyl, CEO of Edmunds.com, called 2009 a pivotal year for Hyundai.
"The economy gave them a shot, and they certainly took advantage of it with creative marketing," he said. "If the vehicles deliver, then some of these market-share shifts will not be just temporary, but they could be more permanent."
Hyundai, Kia surge in soft economy
Hyundai Motor America and its affiliate Kia Motors together outsold Chrysler in August, an impressive feat for the South Korean group that has been skillful in taking advantage of a downtrodden economy to get a better foothold in the U.S. market.
Sales jumped 47% for Hyundai and 60% for Kia in August compared with a year ago, a gain partly driven by the U.S. government's cash-for-clunkers program.
Combined, the Korean group sold 100,665 vehicles last month.
"They've been revving at 900 r.p.m.s," Erich Merkle, industry analyst with Autoconomy.Com, said of Hyundai.
The Hyundai Elantra ranked No. 5 in the list of top sellers under the clunkers program.
"Consumers are looking for bargains and Hyundai is offering bargains," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates.
But Hyundai's success story began long before August.
The Korean automaker has been laying the foundation for bigger success since the late 1980s when it arrived in the United States with a small car that was plagued with quality problems.
About a decade ago, the company launched a 10-year, 100,000-mile warranty program and set out to build a reputation for quality.
In recent years, Hyundai has scored high with Consumer Reports and J.D. Power and Associates for quality. The new Hyundai Genesis midsize sedan won 20 major industry awards.
"We've been working so hard on quality, recognizing that we really need to overachieve because of how the brand started in the U.S.," said John Krafcik, president and CEO, Hyundai Motor America.
That message is resonating now as car shoppers look for low-cost cars. The bad economy is encouraging some new customers to take a chance on Hyundai, experts said.
The average transaction price of a Hyundai vehicle purchased this year is $21,326, with a comparable $20,455 spent on a Kia, according to Edmunds.com. The industry average is $28,174.
"They're more likely to give Hyundai a shot than they would under normal circumstances," Jeremy Anwyl, CEO of Edmunds.com, said. "If Hyundai delivers, they've now gone into the next level. ... The risk of quality is no longer an issue."
Beyond improved quality, Merkle said Hyundai's product cadence and greater emphasis on emotionally appealing design is helping its efforts.
"If you can get the quality there and have vehicles that have a strong, emotional appeal from a styling perspective, you can win at this game," Merkle said.
More growth expected
A study by Banc of America Securities-Merrill Lynch this summer projected Hyundai and Kia will see even more market share growth in the next four years, largely because the group is slated to have a much larger product replacement schedule than the industry average.
Hyundai and Kia's average replacement rate over the next four years is predicted to be 27%, "well ahead of the industry average of 18%," according to the report by analyst John Murphy.
"We expect Hyundai and Kia to gain significant market share, about 3.5% over the next four years," the report said.
Half of Hyundai's vehicles are assembled at its assembly plant in Alabama, Krafcik said. Kia is to begin production at a new assembly plant in Georgia later this year.
Hyundai plans to launch seven new products over the next 24 months, Krafcik said.
So far this year, Hyundai's sales are down only 0.7% compared with last year and Kia's sales are up 3%.
For the year through August, the Korean group has a 7.5% combined market share while Chrysler is at 9.2% -- down from 11% during the same period last year, according to Autodata Corp.
Krafcik noted that a few years ago, Hyundai was on about 10% of shoppers' consideration lists. That has risen to about 30%.
He expects Hyundai U.S. sales to end the year at least on par with last year -- if not be better. That's impressive considering industry U.S. sales are down 32.1% so far this year.
According to Edmunds, 19.4% of buyers that switched from a previous brand to Hyundai in August came from Chrysler-Dodge-Jeep brands. About 23% came from Ford. A little more than 12% came from Chevrolet and 3% from Toyota.
2009 started well
The first indication that 2009 could be a good year for Hyundai came during the Detroit auto show when the Hyundai Genesis won North American Car of the Year.
Buzz grew as it advertised heavily during the Super Bowl and Academy Awards -- traditional venues for GM, which had to pull out to save money.
One commercial showed angry executives at Lexus and BMW yelling the name of "Hyundai!"
An announcer follows by saying: "Win one little award and suddenly everyone gets your name right. It's Hyundai, like Sunday."
At the same time, Hyundai launched a powerful marketing campaign that promised to allow customers to return their new cars if they lost their jobs.
Hyundai followed up with other smart marketing efforts, such as launching a clunkers-incentive program before the government's program was official and a gas-guarantee program.
"They've really been on the cutting edge with these new marketing programs at a time when consumers were looking for something fresh and new," said Schuster of J.D. Power.