For Kia dealers, 2011 'was just an all-around win'
Age: 60 Dealer since: 2001 Dealerships: Executive manager of The Kia Store, locations in Louisville, Ky. (2); Clarksville, Ind.; Elizabethtown, Ky.; and Gadsden and Anniston, Ala. Average monthly sales in 2011: 375 new, 170 used Quote: "We have legitimately gone from being an alternative brand for the used-car intender to being on new-car shopping lists."
Kia's success in 2011 made the rest of the industry look bad by comparison.
Sales grew 36 percent in 2011 to 485,492 units in an industry that gained 10 percent over 2010. The brand also grabbed a 3.8 percent share of the U.S. market, up from 3.1 percent in 2010.
New vehicles such as the Optima mid-sized sedan, Rio subcompact and the freshened 2012 Soul won acclaim from critics and consumers alike.
Staff Reporter Ryan Beene spoke with Don Hobden, Kia National Dealer Council chairman and managing executive of six Kia dealerships in Kentucky, Indiana and Alabama, about Kia's 2011 performance and what's ahead in 2012.
2011 was another year of records for Kia. What were the biggest reasons for that success? Product? Marketing?
Obviously, it was all of the above. The advertising at the tier one and at our tier three level were great. The share of voice increased year over year. I think Kia did a great job in taking advantage of the position that some distressed manufacturers were in throughout the year with that share of voice, and I think the product spoke for itself. The newly redesigned Optima was received so well. The lease payments were a huge part of our success. The increased residual values played a role in that, too.
It was just an all-around win.
Tight inventory was an issue for Kia dealers in 2011. What does vehicle availability look like in 2012?
I hope to have the answer to that after NADA. I don't know what officially the outlook for inventory is, and I don't know what kind of sales gains KMA [Kia Motors America] is expecting at this time of year.
I would anticipate that they will be a little more modest than last year. But, hey, they underforecasted last year, based on their actual results.
Are Kia dealers getting the right cars? Are they getting what's most in demand?
I think we are. We had under 30 days supply as a company last June and July. Right now, based on our six stores, we're right at or under a 60-day supply so it's twice what it was, and we're still selling cars through December and January so I think things are pretty good.
What has the factory said about how Kia will keep up its momentum in 2012?
It hasn't said anything yet.
What would you like to see happen?
I'd like to see some incremental inventory availability as the year progresses, especially in the Optima, Soul and Rio lines. With the Sorento, because we're capable of building, I forget the exact number, but something like 100,000-plus units here in the United States, that's going to be consistent. But I'd like to see some improved production on the Soul, Optima and the Rio. That's me personally.
Kia has already added another line to its factory in West Point, Ga. How important is that additional production capacity for Kia dealers?
It's critical. I think that what KMA is facing is that there is high demand globally for the product. President [Byung Mo] Ahn and [Vice President of Sales] Tom Loveless -- they're putting up a good fight to get our fair share or more than our fair share, and I have no reason to believe that won't continue.
How much emphasis is the factory putting on dealers renovating their facilities or building new stores?
They presented it at the last two dealer council meetings, but they're not requiring it at any level. The last I heard you could take bits and pieces of it. They still have to approve your plans, but as long as you're doing your best to look like their image, they're not requiring you to "build their box" at this point.
Encouragement is coming forward, but that's on a one-to-one level, when your facilities don't meet their minimum standard or you're building a new point.
Kia's "Hamster" spots are fun commercials. Do they help sell cars?
I think they do. People relate them to the brand now. This last round of commercials with the robots and LMFAO that sang the music -- it's very, very recognizable. I think they do sell cars, especially the Soul.
Michael Sprague, Kia's U.S. marketing boss, says the brand's biggest obstacle remains awareness among consumers. What would you most like to see the factory do to address that?
As a dealer, I'm always going to say that they could raise awareness by spending more money. In the same breath I understand as a businessman that that's not always possible. I will say that over the last couple of years that in my opinion, we have legitimately gone from being an alternative brand for the used-car intender to being on new-car shopping lists, quite a few actually. We trade literally for everything.
Kia has had a major product blitz over the last two years. Now, there's a lull in the product launch schedule. Is this a concern for dealers?
No. They've done a great job at rolling out some great new products. A 12-month hiatus by industry standards is a very short hiatus for rolling out new products. I think we're way ahead of the curve. I think the focus this year will be availability, and I think we'll sell all that we get. I'm very optimistic.
How were incentives structured in 2011? Is Kia making any changes in how incentives are structured for 2012?
I have not seen any changes in the works for the last few months. My guess would be that the most expensive incentive is to write down those lease payments, and they stuck with that all last year and it's my expectation that they'll stick with it all of this year.
At one of my stores [in December] we did 30 [Kia Motors Finance] leases. Relative to two or three years ago, that's incremental business.
Those are 750 and above scores. Those are people that can buy whatever they want, and we're capturing that.
What kind of lease penetration are you seeing at your stores?
One of my stores sold 120 new cars [in December], and 30 were leases. Companywide, I doubt it's that high, but all of my tier three marketing revolves around the lease payments.
Are Kia dealers profitable?
It's improving. We had a record year at our six stores. I can remember at the end of last year that dealer profitability was the No. 1 concern that we took to KMA, and we worked on it throughout the year and it continued to improve.
What helped dealer profitability in 2011?
The big driver was throughput in fixed operations.
Can you elaborate on the extent to which fixed operations have improved?
It's improved to the point where you can see through our 20 Group composites and through our own financial statements that our fixed coverage has substantially improved year over year. It's gotten much better.
My top store's fixed coverage is 105 percent, and it used to be 66 percent or so three or four years ago. My newest store is probably at 30 percent. It's a pretty wide range. A lot depends on how many units in operation that you have, how long you've been there, how well you serve the customer.
Did Kia introduce new programs to help with fixed operations?
They did. They partnered with a company called One Command that does organized follow-up, e-mail, text messaging and direct mail to your customer base, based on the manufacturer's recommended maintenance schedule.
Are Kia dealers making money on new-car sales?
Yes, we are.
Could the factory do anything to help increase new-car margins?
They could increase them, of course. But part of that is they want to keep invoice pricing where they're competitive on the Internet. They need to be profitable, too, and I understand all of that, but profitability will always be an issue. I don't know what the average Kia dealer is making, but I'm sure it's a lot better than a year ago at this point. c