New Kia boss reaches out to restless dealers

Byung Mo Ahn
LOS ANGELES — Kia dealers are seething over low profit margins, sliding sales, bloated inventories and the seventh CEO change since 1999 — and they want to know what the company's Korean bosses plan to do about it.

And Kia Motors America's new CEO, Byung Mo Ahn, promises to put things right with dealers. But his first step was to saddle them with a sales goal that many dealers say is way, way out of reach.

In a letter to dealers, obtained by Automotive News, Ahn said he will accompany dealer council members to Korea the week of March 9. The dealers will meet with top Kia Motors Corp. management, visit the r&d center and test drive Kia vehicles scheduled to launch through 2010.

"That is supposed to help soothe the jangled nerves of the dealer body," said one skeptical retailer.

Said another: "Dealers are sitting on all of this inventory, and a lot of them are angry."

The inventory situation was cause for an emergency dealer council meeting at the National Automobile Dealers Association convention last month in San Francisco.

"Nobody was selling anything," said a dealer who attended the session. "Believe me, some of the big hitters are real nervous about the future of our franchises. Here we are in 2008 with no leadership and the seventh change of face."

Ahn, 57, replaced Len Hunt, who along with marketing vice president Ian Beavis left Kia without explanation on Feb. 8, just before the NADA convention. Many dealers say they think Hunt and Beavis were fired.

Ahn has been in the job before. He was CEO of Kia Motors America from 1999 to 2001 and most recently was president and CEO of Kia Motors Manufacturing Georgia. In that position he oversaw preparations for an assembly plant Kia is building in West Point, Ga. Three days before Hunt and Beavis left, Ahn was named to the new post of chairman and group CEO of Kia Motors America and Kia Motors Manufacturing Georgia.

Ahnís diagnosis
In a letter to dealers, Kia Motors Americaís new CEO, Byung Mo Ahn, said Kia has "many areas for improvement." He said
-- Most dealers are not profitable.
-- Kia relies too much on incentives.
-- Brand awareness is lacking.
-- Advertising must improve, and ad dollars must be spent more efficiently.

'Areas for improvement'

In the letter, Ahn said that the company appreciated the jobs Hunt and Beavis did, but pointed to "many areas for improvement."

"During my tenure in the late '90s as KMA's president, most of its dealers were enjoying profitability," he wrote. "I discovered recently, to my disappointment, that this is not the case currently."

Hunt said in January that Kia dealer profits in 2007 averaged 1.4 percent of new-car sales revenue. That compared with an average 1.7 percent for all brands, according to NADA. He said absorption was 45 percent, compared with the national average of 60 percent. Absorption is the percentage of a dealership's overhead covered by its parts and service business.

Ahn also wrote that Kia:

-- Relies too much on incentives.

-- Needs to improve advertising and spend ad dollars more efficiently.

-- Lacks brand awareness in this country.

Meanwhile, dealers have complained to Ahn about swollen inventories — more than 20,000 new 2007 models in combined dealer inventory and port stock. Most of them are Sedonas, Sorentos and five-seat Rondos sitting on dealership lots, said a Kia insider familiar with the situation.

Kia is offering cash rebates ranging from $500 to $1,000 on all models. The $1,000 spiff is available on the Sportage, Sorento, Amanti, Rondo and Sedona.

Pressured to take vehicles

Dealers say they were pressured in December into buying more vehicles than they wanted so the company could hit aggressive sales targets. Retailers could receive up to $400 per car sold if they met their monthly sales goals in December, January or February.

Dealers ordered vehicles, but December sales plunged 19.8 percent from December 2006 to just 24,068 units. January sales dropped 5.2 percent to 21,355 from a year ago.

"We were all stuffed into a special program in December to buy a target number of units," said one retailer. "Dealers bought the cars, but they were pissed when the required December sales number was not met."

Back in charge
Byung Mo Ahn is again running Kia Motors America. The company has changed CEOs 7 times since 1999.
1999-Dec. 2001: Byung Mo Ahn
Dec. 2001-Jan. 2003: James Lee
Jan. 2003-Oct. 2005: Peter Butterfield
Oct. 2005-Dec. 2006: James Lee
Dec. 2006-Nov. 2007: B.G. Lee
Nov. 2007-Feb. 2008: Len Hunt
Feb. 2008: Byung Mo Ahn
Source: Kia Motors America

Wanted: A 47% jump

Now dealers and company insiders say Ahn wants them to sell 450,000 cars and trucks this year. That would be more than 47 percent more than in 2007, when Kia sales rose 3.8 percent to 305,473.

A big problem, says Russ Darrow, owner of six Kia dealerships in Wisconsin, is that Kia does not help its dealers with floorplanning costs. He says that's a must if the company wants the dealers to make large orders.

"The issue of floorplan assistance is important," Darrow says. "If we're going to buy cars like crazy, we need that floorplan assistance."

Dealers say Kia is one of the few mass market carmakers that does not help its dealers to finance their inventory.

The Kia insider said the company didn't have the budget.

"Floorplan assistance is very expensive, and it doesn't move retail," he said.

In his letter, Ahn did not address floorplan assistance. But he did write that Kia relies too much on incentives to move vehicles.

"We will look into enhancing our (advertising) creative and focusing more on the message," he wrote.

Ahn also said that the Kia brand does not have high recognition among U.S. consumers.

Customers "seem only to know about two Kia products — the Sportage and the Spectra," he wrote.

Ahn said in the letter that dealers are entitled to ask tough questions, but "we also ask you: 'What else will it take to sell more cars?' " 

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