Hyundai was on quite a roll -- until last year.
After the 2008 downturn, an aggressive vehicle launch schedule overhauled its lineup with many eye-catching designs. Memorable marketing programs, such as guaranteeing the trade-in values for new cars and letting customers return vehicles if they lost their jobs, also helped lift the Hyundai brand in the eyes of U.S. consumers. And shoppers responded, with Hyundai setting multiple U.S. sales and market-share records.
Yet although Hyundai Motor America posted another U.S. record sales year in 2012, market share fell for the first time since 1998. Capacity constraints kept inventories lean, while Japanese competitors had re-stocked since the 2011 earthquake and tsunami. In November, the brand received a black eye when it acknowledged that it inflated mpg ratings on various nameplates.
Scott Fink, chairman of the Hyundai National Dealer Council and owner of three Hyundai dealerships in Florida, including the brand's second-highest-selling dealership, spoke with Staff Reporter Ryan Beene about Hyundai's performance last year and what's ahead in 2013.
How was 2012 for Hyundai dealers?
Hyundai dealers had a fabulous 2012 -- all-time record volume for HMA [Hyundai Motor America]. The biggest challenge that dealers faced was ongoing availability issues, but in spite of that, dealers had a great year.
Hyundai lost market share last year for the first time since the mid-1990s. What happened?
It was directly related to availability. The dealers feel that if we would have had the right number of available cars we would have set a record for market share performance.
How much of an impact has the overstated miles-per-gallon issue had on Hyundai dealers?
When it came out, for me personally as chair of the dealer council and for the dealer council as a whole, we were very concerned about the potential impact -- whether we would hear things, or, more importantly, that we wouldn't hear things. Frankly, I've been pleasantly surprised that at least at my three stores and from the feedback of many other dealers, it's been a nonimpact.
My biggest concern was trust, that consumers would say they couldn't trust us.
Hyundai did a good job from a PR perspective in communicating to the dealers and communicating to consumers that it was an honest mistake, they apologized for the mistake and they put a plan together to financially make consumers whole. Generally speaking the consumers accept that.
How have your customers reacted?
The customers are happy because from their perspective they're getting free money. The customers will come in and say, "Hey, will you help me?" They like the fact that they're getting a check based on the miles they're driving. It's free cash.
What are the major issues Hyundai dealers face this year?
The major issues are going to be ongoing competitive pressure, as we have had since the middle part of 2012, from a resurgent Toyota, Honda and domestic industry. A number of key car lines are going to be capacity-constrained. Although our inventories are better than they have been in a long time, if the SAAR continues to grow, we're going to be constrained on our ability to grow market share.
Hyundai added a third shift at its Alabama plant last September. Has that helped alleviate some of the pressure dealers have felt from tight inventories?
It has to a degree, but on key car lines like Accent, Azera and Veloster, which are not built in the United States, we're still dramatically short on availability.
Will Hyundai lose market share again in 2013 if vehicle availability doesn't increase for Hyundai's U.S. dealers?
I think it depends on where the SAAR comes in. If the SAAR grows 6 percent and our availability grows 4 percent -- I'm not the sharpest knife in the drawer, but I think that's going to take you down.
I think Hyundai executives in America will continue to fight for availability, and we're hopeful that the initial product plan is just that, an initial plan, and the company is able to garner some additional availability as the year goes on.
There's going to be a minor uptick in availability, and the hope is that they'll be able to go back for more if demand is there. But they couch it to me by saying "nothing is guaranteed."
As you enter your third term as Hyundai's dealer council chairman, what are your main priorities for the dealer body?
We don't have an aggressive product launch cycle in 2013. We've got the new long-wheelbase Santa Fe and a few other minor things, so we've got more of a carryover lineup.
The dealers have to understand that we're going to have to be more aggressive in the marketplace to maintain our sales rate and share.
That's really going to be the key focus for us, working with the manufacturers to make sure the right programs are in place to remain competitive in the marketplace.
How much downside risk do Hyundai dealers face considering the slower product launch cadence this year?
There is an inherent risk there. But on the positive side, the current Sonata is 3-plus years old, and we had a record month in December.
The Sonata continues to be a very viable product in the mid-sized segment. The Elantra is 2 years old now and the body style is as fresh as yesterday.
The Veloster was right on their heels, the Genesis Coupe was just redone, so although we don't have the product assault that we used to, I think we have a very aggressive lineup, and I think we have a very competitive lineup.
Do you expect that the company will begin to offer more traditional cash rebates this year after it has offered very little -- if any -- in the way of cash-on-the-hood types of incentives for the last few years?
I think it's directly related to the sales success of the product. The company is very proud, and rightfully so, of the success we've had with the cars, and it's by no means prepared to give up its volume. I feel confident that they will do what they need to do from a competitive perspective to ensure that the dealers are competitive at retail.
The dealer council is going to continue to work with HMA to keep them appraised about what's going on at the retail level.
How much competitive pressure do Hyundai dealers feel from newer models in Hyundai's key segments -- mid-sized and compact car -- and some more aggressive incentive spending from competitors?
Again, I think Hyundai is prepared to do what's necessary to ensure that we're competitive. December was a very aggressive, very competitive month, and Hyundai had a great month.
We feel the programs they put in place worked very, very well and the sales results were indicative of that.
Are Hyundai dealers profitable?
Yes. I don't have the numbers, but I do know that it was a record-setting year on the profitability front.
How is Hyundai's dealership renovation program progressing?
I don't remember the exact numbers, but I remember [Hyundai Executive Vice President of Sales] Dave Zuchowski sharing with us that dealers have spent more than half a billion dollars on facilities investment.
Dealers are adopting the program even though it's not a requirement. The dealers recognize that as this brand continues to grow in volume and reputation, we need to keep pace and provide to our consumers the environment to which they've become accustomed.
How is Hyundai's certified-used program working?
At my store, in December of 2011 we sold zero CPOs. In December of 2012 we set a one-month all-time record with 115 CPOs.
I can tell you, every month, more dealers are participating in the program. And if I remember correctly, Hyundai's CPO growth was No. 1 in the industry in 2012, year-over year.
It's a huge profit center for the dealer. It has been a huge profit enhancer for me. I'm able to be more aggressive on the new-car side at trade-in time. I can put in more on a 2010 or 2011 Sonata that a customer wants to trade in than a neighboring Toyota dealer can. I can retail that trade-in and keep that guy as a customer. I think dealers see that.
Are there any ways it could be improved?
I think we have a very aggressive and competitive program. It's just a matter of caring to get the word out. Every month, there's more and more dealers participation in the program, and I think you'll continue to see that.
How well have Hyundai's premium vehicles -- the Genesis and Equus -- performed in your showrooms, and what do you think about the prospects of Hyundai's premium vehicles?
Generally speaking, Equus and Genesis have performed how I've expected them to perform. In my market they're not a significant piece of my volume because of my demographics. But if you look at some of the Hyundai dealers near Manhattan or some of the guys in South Florida and in other markets with strong economies, the Genesis and Equus are a significant part of their volume.
We're looking forward to the new Equus with some changes to the Ultimate package, which will make it more competitive, and we love the design direction of the Genesis concept.
That A7 Audi is beautiful and if the Genesis went in that direction, that would be fantastic.
Hyundai leaders have made it clear that they believe it's better to sell their premium vehicles through the same dealerships as their mainstream products, not through a new luxury brand or new sales channel. Now that you've seen the new design direction, do you think there could be benefits to creating a separate channel for their premium cars?
That's an interesting question. Do I think there could be benefits? Sure. Do I think the cost equates to the benefits received? Absolutely not.
Hyundai continues to prove that with the right training and the right processes, you can achieve your sales goals while selling premium and nonpremium vehicles in the same showroom.
Have Hyundai dealers done enough to improve their showrooms to properly showcase these cars to upscale customers, especially considering Hyundai's future design direction for its premium cars?
I think the current standards have worked and make a lot of sense. I think I'd have to reserve comment until the product is launched. At the end of the day, whether it's for the current generation Genesis or this future design language, it really comes down to how you treat the customer at the point of sale. I think the dealers have done a very admirable job of taking care of the premium customer.
Improving customer satisfaction was a big focus of Hyundai last year. How well have Hyundai dealers performed in improving customer satisfaction, and what still needs to be tackled?
Hyundai continues to raise its requirements for salespeople to get compensation and the dealers continually respond by jumping over that bar. Generally speaking, I'm happy, and I think HMA is happy with the dealers' performance.
The fixed operations of Hyundai dealers have historically contributed less to a dealer's bottom line when compared with other brands. Where do Hyundai dealers stand now in terms of their service and parts departments, and what are dealers doing to attract more service business?
The last information I saw said we're still below the industry. It's absolutely an issue that we talk about from a dealer council perspective, and I know Hyundai is working internally to develop programs that they can roll out to the dealers to help us. We're advocating that.
One of the biggest issues we face is that we build a superior product, and a superior product doesn't break down. So it's hard to generate customer pay when a lot of your [sales] growth has just been over the last three years and your products don't break down.
You have an industry leading warranty, so it's not like 20 years ago when you're going to get two or two-and-a-half hours per repair order.
I'm one of the biggest dealers in the country, and if I do an hour RO, I'm happy to get it.
I'll tell you though, we've really grown our customer pay business, and it was directly related to me expanding my service bays. When I bought another building and got all those additional bays, I increased my customer pay business by 35 percent.
Have many dealers expanded their service capacity?
Yes. If you want to have a warm, comfortable and inviting showroom, it's equally if not more important on the service side. Your average dealer has doubled his sales volume.
Well, when those customers start coming back, if you don't have the bays to handle them, they're going to go elsewhere for service. That's where the real opportunities are.
What's missing in the product lineup?
We joke that every new dealer on the dealer council always asks for a truck. Do I really think we need a truck? My experience tells me that those are big segments that we don't play in.
Do I think we could be more aggressive in the hybrid or alternative fuel vehicles? I'd say yes. We're excited about the seven-passenger Santa Fe being a more competitive entry than the Veracruz. But I think Hyundai has a very competitive lineup that puts us in a really strong position in the United States.