Over the past two years, its sales have nearly tripled. It has a new sport-utility and a new luxury sedan. Hyundai Motor America seems to be on a roll.
Still, Finbarr O'Neill, the company's mild-mannered CEO, calls Hyundai a 'fragile' brand. The lawyer-turned-executive took over at its nadir, in September 1998, when the company was on its way to a record low 90,000 sales.
Since then, working with longtime agency Bates USA, O'Neill has been on a worst-to-first mission - and making headway. Hyundai, O'Neill says, is going 'from brand of last resort to a brand of choice.'
That journey is far from over. O'Neill is aiming for the day when Hyundai is recognized more for vehicle styling and solid customer service than for a 10-year powertrain warranty and heavy incentives. To reach that goal, Hyundai will invest heavily in event marketing and building its ties to dealers.
In the meantime, Hyundai's recent gains stand to be tested as the economy slows down.
Product out in front
'Product is the essence of image,' says O'Neill as he stands near a bronze-colored Santa Fe.
The maker's first sport-utility went on sale in September. Starting at about $17,000, it is being pitched with the message that O'Neill wants for Hyundai: Quality, performance, styling and utility - for a lower price.
According to Brian Walters, director of automotive product research at J.D. Power and Associates, Hyundai has improved its quality ratings by 24 percent over the past two years. The Accent and Elantra, for example, outscored such hits as the Volkswagen Jetta and Ford Focus in J.D. Power's 2000 Initial Quality Survey. History hasn't viewed Hyundai so kindly. Its first U.S. car, the Excel, was a quality nightmare when it debuted in 1986. And Hyundai sold a lot of them before that truth came out. Such reputations are hard to shake.
The onus to change that image lies heavily on Hyundai's marketing department, headed by ex-agency exec David Weber. He became Hyundai's vice president of marketing in 1998, after 21 years of pitching ads for some of Hyundai's Asian competitors, including Mazda and Mitsubishi.
When Weber, 45, joined Hyundai, one of the first tasks was to evaluate Bates USA. The New York agency had been Hyundai's agency of record since the importer was formed in 1985.
In Weber's view, Bates had been weathering a 'bad client' for more than a dozen years. Bates had a lot of good ideas just waiting to be hatched. The agency had been pushing Hyundai to be more daring and adopt a five-year rebuilding campaign. Under O'Neill and his new team, Hyundai finally took the bait.
A 10-year/100,000-mile powertrain warranty, devised by Bates and Hyundai, marked the first step in 1998. 'Our goal,' says Weber, 'was to take the risk out of people shopping Hyundai. Give us a look.'
Look they did. And buy. Hyundai sales increased 82 percent in 1999, to 164,190, and 49 percent in 2000, to 244,391.
The second step: Get the product in front of people.
Initially, Hyundai promotions aimed at mall shoppers, college students, women and race fans. Now the scope has become more focused.
Weber says 15 percent to 20 percent of this year's marketing budget - estimated at $170 million - is being funneled into event marketing. One goal: Lure soccer families to the Santa Fe. The sport-utility is the official ride of the new Women's United Soccer Association, which begins play in April. The four-year deal cost Hyundai an estimated $7 million, according to Advertising Age.
Hyundai will also establish itself among more affluent buyers by sponsoring professional golf tournaments. The company will enter the links on the strength of its new semi-luxury XG300, priced below $25,000. The sedan is scheduled to appear at several tournaments, including Hyundai's own Team Matches, the $1.2 million PGA event which was broadcast on ABC-TV in December.
Daniel Gorrell, a partner at Strategic Vision Inc., a San Diego consulting firm, says it will take more than golf and soccer sponsorships to keep this automaker in the game.
'The challenge for Hyundai is earning trust,' he insists. Hyundai's recent sales boom, which can be heavily attributed to the warranty and a bull U.S. auto market, is a testimony of the product's value, not necessarily a validation of durability, says Gorrell.
J.D. Powers' Walters says the durability question won't be answered overnight. He estimates that Hyundai will need four to five years for consumers to confirm the claims behind today's product.
In the meantime, 'We need to be consistent and maintain momentum,' says Timothy Hart, president of Bates' western arm in Irvine, Calif.
Hyundai has turned down for the U.S. market a Hyundai minivan sold in Asia. The minivan was tempting for a company that targets women and families.
O'Neill's rationale? 'The vehicle was undersized, underpowered and - from a product feature and styling point of view - it was yesterday's news.'
Product is only part of the puzzle. Dealers are key, too.
Half of Hyundai's dealers sell the brand alongside another make, such as Isuzu or Honda. For such dealers, O'Neill admits, each make is a department. 'The departments that have the dealer's focus get more management attention, more resources, better results.'
One way Hyundai reinforces that link is by allowing Bates, the agency for the company and its dealers, to integrate on a grass-roots level such national themes as 'The Freedom of America's Best Warranty' and 'Driving is Believing,' on a grassroots level.
Through the first eight months of 2000, Hyundai's dealer associations tallied $57.8 million in measured media spending, only 25 percent less than the automaker's $76.8 million over the same period, according to Competitive Media Reporting. On average, U.S. factory ad spending is 69 percent higher than that of its dealers.
And those dealers appear to be selling to a new kind of Hyundai customer. According to Hyundai Motor Acceptance Corp., 70 percent of its customers were C or D rated credit risks in 1998. Last year that figure dropped to 21 percent.
'According to what our dealers are telling us, people aren't coming in playing us against used cars anymore,' says Weber. 'It's between us, Honda and Toyota. Our education is up dramatically, 30 to 40 percent; household income is up $5,000 over the last two years. We are seeing a much more qualified person coming in.'
The shift in consumer demographics has Weber allotting marketing dollars, along with money from Hyundai's sales budget, into dealer training.
Not on sale
Hyundai customers who are expecting deals will find things have changed, too. Hyundai's highest rebate right now is $500.
'It was a struggle because we had trained ourselves as well as our dealers that we were on sale,' says Weber. 'We were offering $2,500 to $3,000 on a $12,000 car. People were not buying the car because of the car, they were buying because of the deal.'
And deals don't make a brand. Hyundai's success will be gauged not so much by sales, but where the brand sits on consumer's shopping list.
While O'Neill's goal is to sit atop the shopper's consideration list, he admits the road to being the brand of choice is long and bumpy. 'We have no margin for error.'