Hyundai: Word from the Top

Dr. Dong-Jin Kim, Hyundai's Vice-Chairman and co-CEO, spoke this week with members of the U.S. media who were in Korea to drive the company's new, rear-wheel-drive luxury sedan, the Genesis.

Hyundai at one point planned to launch its own luxury division in the United States, like Toyota's Lexus and Nissan's Infiniti. But, as Dr. Kim explained, the company came to realize that such a move did not make sense for Hyundai at this juncture in its history: "A separate luxury arm is still on the table for later, perhaps, when we have sufficient luxury cars to support a brand. But our first obligation is to our dealers, to make sure they are profitable. Some day. When we are strong enough."

"We investigated the possibility of a separate luxury channel for the Genesis, but we concluded that such a move was premature," says Dr. Kim, seemingly without regret. "It would cost too much money---at least $500 million---and we estimated that it would take at least thirteen years to break even from that investment, and a total of twenty years to recover from accumulated losses." Toyota, according to Kim, had a $2 billion deficit when they started selling Lexus cars, although of course now they make plenty of money from the division. Dr. Kim's view on Infiniti, though, is that Nissan still might not have recovered their accumulated deficit. "It is very difficult to make money, to penetrate this premium market," he says, "so we have to be very cautious. We are learning lessons from Honda, from Acura."

"The main purpose in developing luxury cars is to build Hyundai brand awareness," explains Kim. "If we succeed with the Genesis, then we are competent [enough] to introduce more luxury products in the future. In the first full calendar year, we hope to sell 30,000 Genesis sedans in the United States, out of a total of 80,000 units. We will produce a total of about 60,000 Genesis coupes."

But even as he launches a rear-wheel-drive luxury sedan that is clearly the pride of the company, Kim expresses regret that Hyundai has taken its eye off the ball in terms of small cars, its core competency. "In the past few years," he recalls, "we neglected the small-car segment. [Therefore], we are going back to the mainstream of our business. We are confident that we are good at small cars." Implicit in his comments was the assurance that the next-generation Hyundai Accent finally will be the equal of successful subcompacts like the Honda Fit and the Toyota Yaris. And he explains that, in the greater Hyundai scheme of things, the Genesis is actually somewhat of an anomaly: "Rear-wheel drive, like in the Genesis, is for near-luxury cars only [for Hyundai]."

Although the North American market clearly remains important for Hyundai, it constitutes only 20 percent of Hyundai's total sales, and the automaker continues to cast its eyes elsewhere around the globe. This is not unlike Toyota and other Japanese carmakers, who can no longer rely on the United States for sustained growth and are instead seeing big growth in China, Russia, India, and Brazil. "We are going to provide very economical solutions to our customers in emerging markets," says Kim. "We will penetrate even the African market, and not with a Nano." The India-built Tata Nano, unveiled at this year's Geneva show, is a $2500 bare-bones car for emerging markets.

As for alternative fuels, Kim confirmed that the next-generation Sonata, which arrives in 2010 as a 2011 model, will be offered with a hybrid powertrain, one that he claims will leapfrog Toyota's current hybrid operating system. And he says that Hyundai will have fuel cell vehicles, but will not build a pure electric vehicle.

But Hyundai has no intention of becoming a full-line automaker in the United States, says Kim, who said that a convertible and a pickup truck are not in the company's near-term plans. That said, he confirmed that seven new products are coming down the Hyundai pipeline for the U.S. market over the next two and a half years, and two of them are all-new models, not simply replacements for existing vehicles. Hyundai Motor America will need these to help it meet its parent company's aggressive sales goals in the States, where it sold some 470,000 units in 2007 and hopes to break the 500,000 barrier this year.

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