SEOUL - Moving to shake off its image overseas as a maker of marginal-quality econobox cars, Hyundai Motor Co. is fighting back with an up-market export model.
The new car, started under the XG project name, will be badged overseas as the Hyundai XG, for 'Extra Glory,' and as the Grandeur XG at home.
XG exports to Europe begin in early 1999, with projections of 10,000 units in the first year. The car is not expected to be sold in North America.
Developed over 42 months at a cost of 460 billion won, or about $340 million at current exchange rates, the XG is Hyundai's most ambitious step yet to shake off its low-end image. According to Hyundai, the development team benchmarked the Toyota Avalon, Audi A6 and BMW 5 series.
Built off the Sonata platform, the XG rides on a 108-inch wheelbase and it is 191.5 inches long. It is powered by Hyundai's new 2.5-liter Delta engine, an all-aluminum V-6 teamed with a five-speed manual gearbox. A four-speed automatic is optional, as is the H-Matic, a semiautomatic transmission designed with technical assistance from Porsche. The H-Matic is offered across the model range.
Other bells and whistles include high-intensity discharge headlamps and an electronically controlled suspension with continuously variable damping.
Export pricing has not been announced, but the base model retails in South Korea for about $17,000 at current exchange rates.
While generally giving the XG high marks for styling and concept, local analysts say the XG will be a tough sell overseas, where it will go head to head in a segment glutted with blue-chip marques.
'The reality is that in Korea, the XG stands out as a really great car,' said D.S. Lim, auto industry analyst with the Seoul branch of Jardine Fleming Securities Ltd. 'But overseas, it's just one of dozens of great cars. Considering the fact that the XG is a luxury car, they're being a bit aggressive with their projections of 10,000 units in the first year.'
Indeed, despite its best efforts to shift reliance away from the Accent and Elantra, its volume leaders, Hyundai has faced an uphill battle in selling its top-range export model, the Sonata, overseas.
In 1997, the Sonata accounted for just 9 percent of Hyundai's total exports of 565,235 units.
While the new model has an important halo role to play in export markets, the XG's launch in South Korea could not have come at a worse time. The country's bad case of economic flu has severely depressed domestic car sales, especially luxury models, which are defined as having engines with displacements of 2.5 liters or larger.
'The domestic market for luxury cars is off some 70 percent, and signs of recovery are very weak,' said Lim.
The few customers in the luxury market are being courted aggressively by newcomer Samsung Motors, whose Nissan Altima-based SM525 has been making steady inroads into Hyundai's share of the domestic near-luxury market.
Other tempting local luxury offerings include the Daewoo Chairman, a reworked older Mercedes E class, and the Kia Enter-prise, the localized version of the Mazda 929. And because purse strings are very tight, all makers have been forced into a costly incentives battle.
Imports, which made significant inroads into the luxury segment when the Korean won was trading 900 to the dollar, have been eliminated as contenders by the won's collapse.
Given the softness of the domestic market, Hyundai's tack is to slash prices. Indeed, the new XG is priced 15 percent lower than its 12-yearold predecessor, the Mitsubishi Debonair-based Grandeur.
Domestic sales are projected at 30,000 units annually; three models are planned.
The base Grandeur XG Q25 is available with a five-speed manual or an optional four-speed automatic. The Grandeur XG Q25SE (Special Equipment) comes with the V-6, a five-speed automatic transmission and assorted bells and whistles.
At the top of the range is the Q30, which features the 3.0-liter double-overhead-cam Sigma engine mated to a five-speed automatic.
Ready for war
Hyundai is the best positioned of any local maker to wage a price war.
The XG's local content and technology are almost 100 percent homegrown, meaning royalties are almost nil, and its reliance on imported components is negligible. That contrasts sharply with Hyundai's competitors: Samsung, Kia and Daewoo. All have been hard hit by the 50 percent devaluation of the Korean won against the dollar over the past year due to their high reliance on imported parts and technology.
The cost in won of royalties, which must be paid in yen, dollars or German marks, has skyrocketed, as has the import bill for engines and transmissions.
'The aggressive pricing policy is plainly designed to kill Samsung Motors,' said Lim. 'But if sales exceed expectations, the strategy won't really affect Hyundai's bottom line.'