In 1997, Tom O'Brien decided he wanted to get out of the car dealer game and retire to Florida. He unloaded his Nissan, Chrysler-Plymouth-Dodge and Toyota stores in the Boston suburbs and loaded up his golf clubs.
But one of the dealers who bought his Nissan store had a Hyundai store he really didn't care about. And O'Brien couldn't quite wrest himself away from being a dealer. Figuring Hyundai had nowhere to go but up, O'Brien bought in for a song. "It was a disaster car, a giveaway," O'Brien says.
But shortly thereafter, Hyundai took the radical step of launching a 100,000-mile warranty. Sales rocketed, and the quality of its customers moved up with the quality of the cars.
Today O'Brien owns two Hyundai stores and is chairman of the Hyundai Dealer Council - and still hasn't moved to Florida. He spoke with Staff Reporter Mark Rechtin.
How was the past year for Hyundai dealers?
It's been a profitable year for the majority of dealers, and that's the name of the game, not how many units you sell. Hyundai has done a relatively good job in stepping up to the plate. I expect 80 to 85 percent of our dealers are in a profitable mode, so I think the dealers are pretty happy. I wish we had new products right now, but that's coming.
What do you think the prospects for 2004 will be for Hyundai?
I love our position - that we appeal to the lower class and middle class - and now the higher end is folding in. We have the vehicles that will reach all types of people with all types of income. The turnaround is the 100,000-mile warranty. The Koreans have seen fit to extend that until 2008, which gives us another window of opportunity.
The product has held up very well, and I'm very impressed with the quality turnaround. We're not seeing major failures with the engines, transmissions and axles that would cost a ton of money. We're seeing little things that the Koreans take charge of and fix right away.
What is your hot product? What's not so hot?
It's still the Sonata, and the Santa Fe has been a wonder. And the Elantra has been hot. We're trying hard to move the XG350, which is a great value, it's our best-kept secret. Where that's going to play out, I don't know. We're getting the message out there, but maybe not fast enough. We need to go after the Toyota and Honda customer.
What has Hyundai said about incentives spending?
(New Hyundai Motor America President) Bob Cosmai has done a wonderful job in going to Korea and telling them to stay at the pace we are at, especially with no new or redesigned vehicles coming until July with the Tucson. We are going to have to increase our incentives spending. I'm told the Koreans have agreed, and we will have additional money to spend in 2004. It will be substantially up from this year, which was a couple of hundred million dollars for incentives.
What cars are most frequently cross-shopped with Hyundai? American brands? Japanese brands? Kia? Used cars?
We're seeing a lot of cross-shopping now with Toyota and Honda, and also seeing a lot with American cars. We don't see any cross-shopping with Kia. We're even seeing people coming in with Mercedes and Lexus cars. Last week, we traded two Lexuses and one Mercedes. A year ago, if someone had told me that, I would have said you were crazy. But they traded in for Santa Fes and an XG350.
How has Hyundai's customer base changed?
In 1998, the customer that came in was saying just get me done. He didn't have any credit, and they didn't care what they were driving. Now people are realizing the car is a heck of a value. In 1999, I didn't have five people all year who paid cash for the car. Today, one-third of our customers pay cash.
Do you worry that Hyundai vehicles that are shared with Kia will result in the two brands competing for the same customers?
Yes. What the dealer council will stress with management is that we realize Hyundai owns both companies, but it's to both companies' interests to keep them separate. How they do that is a good question. Yes, they'll use the same platform, but they'll make the sheet metal so they look different. That's the way they usually do it. But, I can't deny we will be fighting for the same consumer with Kia, and I will do everything to fight on behalf of my fellow Hyundai dealers.
When Hyundai starts rolling out new and redesigned products in 2004 and 2005, will your dealers have the right product mix and overall marketing strategy to be successful?
I think we will. Sure, we'd like to have the minivan right now, but we elected to do our own van rather than having a made-over Kia. And we've got some bigger SUVs that are coming and a new generation of Sonata. They're talking about a convertible Tiburon. I think the lineup is good. As long as Hyundai doesn't try to be all things to all people, I think we will get the job done.
What's your opinion of Bob Cosmai? How is he different from Finbarr O'Neill in running the franchise?
I think a lot of Fin O'Neill. Here's a gentleman who went from being an attorney to being a sales guy. He had Bob working with him, not for him. And that resulted in a transfer of power without missing a beat.
Bob is more of a salesperson. He knows what it takes to get the job done.
Dealers have a lot of respect for Bob and his capabilities. There's a lot of confidence and trust there. If we were talking about some executive with some other manufacturer, I might crucify them, but you will always get a callback from Bob Cosmai. The communication from Fin and now with Bob is great. But he has to do things better if we're going to sell 1 million cars by 2010.
Bob is a no-nonsense guy. He knows he has a six-month honeymoon period, and after that the honeymoon is over.
Do you worry about brain drain at Hyundai? Are the Koreans driving the talented Americans away?
I did. But I see that Bob was able to fill his position by picking up Ed Bradley, and they are filling positions for marketing and service. There are enough competent people out there to do the job. More important is that they believe in the company and the concept. This year is going to be a trying year for the new folks because we have new service policies coming in.
We're going to see some changes in CSI to increase the value for the salespeople. Hyundai is the only company that pays CSI money to everyone in the company - it keeps people participating. But when you have X dollars, it's just as important how you distribute it.
I think they will restructure CSI, so that instead of a salesman selling 10 cars, they may raise the bar to 12 or 14, but they'll get more money. Or if a service score was 85, it will need to be 87, but the payout will be higher.
What are the priorities of the dealer council in 2004?
At the top is the profitability of the dealer body. If you have profitable dealers, you have happy dealers. We have to continue to improve the quality of the cars, along with bringing new models as quickly as possible. Those go hand-in-hand. We need to be able to react quickly when things are not going well, to make the changes.
Are Hyundai dealers making money on new-car sales?
Yes they are.
Were dealers more profitable in 2003 than in 2002?
I think it's a couple percentage points down in 2003 from 2002. It could be because we have some new, single-point dealers. Once upon a time, you could get Hyundai if you had a gas station. Today, the average blue sky for a store selling 50 to 75 cars a month is $1 million. But for a small market, he may not be making a profit.
How important is the Internet to Hyundai dealers? What could the factory do to help with this?
We're going to work on it. We don't have a game plan yet with the Internet.