This is the prepared text of the speech and may not reflect the verbatim presentation
Good morning, ladies and gentlemen. It's a pleasure to speak with you here at this 25th Automotive News World Congress. My thanks to Keith Crain for continuing to host one of our industry's premier events.
We're here to talk about "The New Landscape."
I don't want to come across as a curmudgeon or some latter day Luddite. But wasn't it just a short while ago when we were being told that the retail landscape as we know it had changed utterly and permanently? Commentators veritably salivating to explain how dealers could not compete in the Internet age - breathless indeed in their anticipation of success of the new economy business models. I wonder, how new, really, is this landscape.
Certainly new technologies, business strategies and models are talked about at conferences and written about every week in the press. There is a whole industry of consultants whose economic raison d'etre is to ensure that we recognize change and the need to hire consultants to find our way through the thicket. Permanent fad surfing.
Don't misunderstand my point. There is real change. But change has always been part of the business. And those companies and brands that have not adapted to change, or have not become change agents, have fallen by the wayside. Indeed, I will grant, in my curmudgeonly way, that the pace of technological change has quickened - witness in-vehicle technology such as telematics, wireless communications, hybrids, or business to business communications, internet-based markets such as i-star or Covisint and other supply chain management innovations. These are real changes, taking place at different paces, which over time will transform our products and some of the ways we do business.
But there has been other change, breathlessly proclaimed, which is not real change at all, just an ephemeral, temporary experience. You know the litany. The many dot-com companies who boldly set out to prove the Internet was going to markedly change how consumers bought their automobiles, making dealers obsolete.
Life cycle management, the ultimate in distribution synergy, an MBA's dream.
Dealership consolidation was going to change how cars were sold, with Auto Nation's commercials even mocking dealership sales people.
Two of the world's largest automakers began acquiring dealerships, in effect, getting into retail.
And right here in Detroit not long ago, Scott McNealy, CEO of Sun Microsystems, told us car makers shouldn't sell cars at all, but rather give them away and only charge customers for the Internet interface in their vehicles!
It is easy to poke fun at some of these phenomena, and by extension, I suppose, at some of their disciples.
But it serves a purpose.
The landscape is a more permanent thing, changing slowly. These temporary phenomena are like winds or storms blowing through.
They may have some impact on the landscape, but they do not change the Verities - the true landmarks that give the landscape its character.
The reason the dot coms and their ilk did not succeed is that they failed to take into account these Verities. What are they? For me, these are a handful worth remembering.
First, cars are a special product. And I am not just talking big ticket durable widgets. The choice of one car over another is a reflection of lifestyle, tastes, our self-perception, our essence as individuals. Sure, there are some utilitarians out there who take no account of style or features beyond the basics. But there are just enough of them to prove the rule.
And because cars are special products, there is a second Verity, the car buying process is unique.
In the last few months I've begun to see others come around to this way of thinking. For example, take leading auto analyst and former president of the automotive division of Priceline.com Maryann Keller. Just a few weeks ago Jerry Flint writing in Forbes Magazine quoted her as saying "people do not point, click and buy a car. That doesn't happen."
In November of last year Fortune Magazine ran an article with a headline that read "Revenge of the car salesmen, The Internet Is A Lemon"
And a story by Jeff Bennet in the Detroit Free Press had a headline saying "Online Car-buying Hasn't Caught On."
People need to see, feel, touch, compare with their own senses.
Advocates missed the point. The Internet is a great information tool. It has limitations as a consumer sales tool.
Heck, you don't even have to be in the car business to understand that. I found the answer in my own kitchen. My wife ordered groceries a couple of times over the Internet. Good selection. Prompt delivery. Yet she found it unsatisfying. Why? It lacked that tactile immediacy of a supermarket. When you are talking about cars, multiply that need a thousand fold. Cars are different. Selling cars is different.
The next Verity is that dealers sell cars. As many of you know, Hyundai has been very fortunate in the last two years. We just closed the books on the year 2000 and our sales are up 49 percent and that follow an 82 percent increase the year before.
Some people have attributed that success to our strong warranty. Sure, it is an easy explanation. But the truth, as usual, is more complex. Indeed, if there was a secret to our success it was our strong emphasis on our dealers and their profitability.
Not too long ago, people were talking about dealers as dinosaurs in our high-speed, Internet-connected world. Dealers had to change or die.
Well, the retail highway is littered with the carcasses of wholesale guys who thought they knew retail. Dealers are not only entrepreneurs. They are immensely adaptable. They are agents of change. Just see how they have adapted to the Internet and the consolidation trend.
I believe that the current dealership system serves the customers and Hyundai well. We are committed to selling cars and trucks through this system and are proud to be associated with our 528 dealer partners. It is because of their hard work and effort that we have been able to increase our sales so dramatically.
They, in turn, see and appreciate our commitment to supply them with the strong product, good marketing and a dedicated, dealer-oriented field staff. A recent NADA Dealer Survey reflects dealer satisfaction with our approach. I'm very proud of the Hyundai's 6th place ranking in this survey, right behind brands like Lexus.
At Hyundai we also don't believe in trying to own part of the dealer network, either. We strongly believe in entrepreneurial dealer/owners who are close to the market and live in it every day. They know the territory, they work the territory and our success is because of their hard work.
If it is a Verity that dealers sell cars, then the corollary Verity is that focused dealers sell more cars.
Let's face it, most dealers own more than one franchise.
Whether our factory egos like it or not, from the dealer perspective, each of our brands is a "department."
The departments that have the dealers'focus get more management attention, more resources, better results.
By 1998, Hyundai had lost dealer focus. Over 60% of dealers were selling less than 1 0 cars a month. Barely fogging a mirror. They were warehousing the franchise.
When I first took the job, I had some very candid discussions with our dealers.
But we had a plan, we followed it consistently, we began to earn dealer focus.
With only limited turnover and the addition of only a few new dealers, we increased sales 160% in two years. Virtually all of the increase largely came from our existing dealers. Why? Dealer focus.
A fifth Verity, closely related to the concept that dealers sell cars, and focused dealers sell more cars, is that profitable dealers are more willin-q to invest in the franchise.
Look, everybody in the industry wants to "upgrade' their dealer network.
We want them to change how they handle customers in the sales and service process. We want them to improve their facilities. What we are talking about is dealer investment. But no dealer worth his or her salt will invest in extras unless the franchise is profitable, and the investment will yield more profit.
So it's not a CSI story, it's not a facilities story, it's not a get connected with the Internet story, it's a profitability story.
If you want change, you have to have a profitable partner. In 1998 we did not have many of those. We sold just 90,000 cars, an all-time low point for the company. It was, as I have said in other contexts, a "near death" experience.
We had a lot of problems, not just sales, but poor CSI, inadequate market representation and so on.
But, as we began our turnaround in 1999, the first priority was to prove that we could sell Hyundais and make a profit. There was no point asking for extra investment in CSI, or facilities, no matter how important, without showing profitability. So, we asked for, indeed fought for, focus'on the Hyundai franchise. In 2000, we needed to continue the momentum, to turn dealer focus up another notch, and to convince the doubtful that our success was not a temporary flash in the pan.
Now we have answered the doubters. We have proven to our dealers, and ourselves, that we can sell Hyundais and be profitable. It is time to build for the future, to construct a solid foundation for growth. We have a long way to go, but after proving that Hyundai can be a very profitable franchise, we have earned the right to ask our dealer partners to invest, to step up and improve customer handling at the dealership, to upgrade facilities, etc.
With a profitable, confident dealer partner it is easier to move forward on these key issues. Now it doesn't mean we can dictate programs. We still must show that our proposals will increase business, strengthen the dealer and franchise brand.
To get agreement on these issues, we need not just the cooperation of our dealers but their honest input. At Hyundai, for example, we have worked closely with the Dealer Council and together we designed programs to improve customer satisfaction.
With our dealer partners, we're looking at every aspect of their operations: how is their service advisor training?; do they have enough service bays to provide service as we increase sales?; with so many service operations dualled, are there enough Hyundai trained technicians?
We owe it to our dealers to provide business guidance that meets their real-world needs.
But the Programs must be practical. So CSI improvement at Hyundai is not so much about academic mantras of exceeding customer expectations or "delighting" people, and even less about cappuccino in the service drive. It's about fair treatment and keeping promises. Things that a dealer can and must do to protect and build their own brand name as well as ours. The bottom line is really about taking care of the customer and assuring downstream brand growth and profitability.
Dealers sell cars. Focused dealers sell more cars. Profitable dealers will work with the manufacturer to invest in improving facilities, systems and processes. That's the second group of Verities. So obvious. Too often ignored.
The last Verity is that brands must chan-ge. See, I do believe in change.
I'm a firm believer, for example, that brands must change over time or they will wither and die. Changing Hyundai's brand image was my number one task when I began as President at the end of 1998.
And even brands that are far from troubled, such as BMW, are undergoing important changes. Who would have thought, even a few years ago, the BMW brand could encompass a sport utility vehicle, or that BMW would selling a Mini, quite a stretch for that brand.
Obviously, in 1998 Hyundai was a brand that had to change. No choice. Change or close up shop.
We had to change the perception of the brand, just to get on shopping lists.
And we had to extend the brand into other segments to get more in tune with consumer demand.
The good news is our attention to brand improvement in the last several years is paying off. Hyundai's image is improving steadily: consumer consideration is up 14.3 percent, opinion is up 31.6 percent, and loyalty is up 48.6 percent in the past two years.
Clearly, the warranty has been an important element in helping change consumer perceptions about Hyundai. Our own tracking data as well as independent analysis clearly demonstrates that consumers see the warranty as tangible evidence of our confidence in the quality of Hyundai, and it causes them to put Hyundai on their shopping list.
But our warranty is not our brand essence. Ultimately, brand essence must be about product.
I believe too little has been made about our product improvements as a major reason for our success. That's because unlike our customers, many in our industry are still caught up in old perceptions of our product - perceptions that are no longer true.
Let's face it, if it's a weak product, you'll have a hard time selling it, no matter how good the warranty is. We have made major improvements in our quality. We have made great strides in styling. We have packed our cars with the features our customers say they want and offer them the best value in the class. When people come down to shop at a Hyundai store, they are not only surprised, they are sold. Hyundai dealer closing ratios are among the highest in the industry.
But while we have made great strides, our brand has a long way to go. It is still fragile. Any new product that Hyundai introduces must advance the brand and make a positive statement about Hyundai's ability to produce cars of exceptional styling, quality, and value. We have done this with our new SUV, the Santa Fe, and our flagship sedan, the XG 300.
But we're also careful not to expand the product line or brand too broadly, or too quickly.
Not long ago we turned down a minivan that was being considered for the U.S. While it's a fine vehicle for some markets and is selling quite well in Korea and Europe, it isn't right for here. The vehicle was undersized, underpowered and from a product feature and styling point of view, it was yesterday's news.
It was tempting to have an offering in the minivan segment, but every new product that Hyundai introduces needs to make a strong statement about the brand and that vehicle did not do it. We have no margin for error.
We do have a lot of great product coming.
I shouldn't forget the concept car we'll display at the Chicago Auto Show in February. That will be a very interesting look at some styling trends we are considering.
Brands must change.
We are making that journey - from a brand of last resort to a brand of choice.
But it is a never-ending journey. The goal posts keep moving.
So this is the landscape that we at Hyundai operate in. A landscape that is changing to be sure. But also a landscape anchored by the Verities - cars are special products, selling cars is unique, dealers sell cars, focused dealers sell more cars, profitable dealers are great partners, brands must change.
It is an interesting landscape. One that keeps me excited and sometimes awake at night. A landscape that is not surreal, as if painted by Dali, but one more marked by permanence, with Verities that stand the test of time.
This year is going to be tough, but I believe that if we stick to Verities, we will do just fine.
That's the new Landscape!
Ladies and gentlemen, thank you for your time.