Last year, Scott Fink said it was an "awesome" year to be a Hyundai dealer. After 2011, another lone adjective summed it up for Fink: "outstanding."
Superlatives aside, Hyundai churned out another banner year in 2011, setting records for annual U.S. sales and market share. The successes came despite tight vehicle availability for new vehicles such as the Hyundai Elantra, which won the 2012 North American Car of the Year award in January.
Fink, owner of three Hyundai dealerships and a Hyundai certified used-car store in Florida and chairman of the Hyundai National Dealer Council, spoke with Staff Reporter Ryan Beene about Hyundai's performance in 2011 and what's ahead for the brand in 2012.
How was 2011 for Hyundai dealers?
I'd have to use one word: outstanding. Hyundai and its dealers achieved record sales levels, had great profit levels, rode the wave of significant product launches, saw the Elantra win the North American Car of the Year and had record market share gains. The only negative the dealers had to face was a lack of enough availability to meet the consumers' insatiable demand.
Do you expect inventory issues to continue in 2012?
We do expect inventory to be tight, for a couple of reasons. Hyundai has assured the dealers that they will be able to get 6 percent or 8 percent more new cars for 2012, but the question is whether that's going to meet the market growth.
The dealers feel that inventory will be tight in 2012 as it was in 2011, but we also feel that we'd rather have too few than too many. Inventory is a very challenging science to master, and the difference between too few and too many is one car.
What other issues will be top of mind for Hyundai dealers?
I think the biggest issue is really going to be our competitors. Toyota is back. They lost a lot of share in 2011 between recalls and the tsunami. They were at a competitive disadvantage. Well, they're still Toyota and they're still a formidable competitor and the dealers know they're going to be back with great products and great programs. We believe that that holds true for Honda as well. Nissan is positioning themselves to gain some more market share, as is Volkswagen.
Just coming back from the Detroit auto show, I think Ford Fusion is a great midsegment entry that has me a little concerned about how to face off with that car with a Sonata that's a year old.
What has the factory said about how it's going to continue to keep dealers in the fight with these resurgent competitors?
We have discussed it. Without Hyundai giving us a specific game plan, we've been assured and we feel confident that a game plan has been developed and when the time is right they will launch the attack. The good news is, if early January is any indication, that business is good. We're turning the cars. We know our competitors are coming, and we will be prepared to fight the fight.
What's the plan? Any specifics?
They haven't gotten into any specifics with me, other than to say that they have a very competitive incentive and marketing plan that would put us in a very competitive position.
Hyundai's incentive spending has been among the lowest on a per-car basis in the industry for a while. Do you expect incentive spending to increase in 2012?
I think that the company is going to have to spend more incentive dollars to be able to continue to sell cars at the same kind of torrid rate. Do I think that we'll be fortunate to remain a low-incentive provider in the marketplace? I would say yes.
Hyundai said that customer rebates only accounted for 18 percent of its incentive spending in 2011. Will rebates play a bigger mix, or will Hyundai continue to focus on lease subvention and APR support?
I don't think rebates will be any more of a mix rate than it is today. It will be more subvention on leases, more APR support, maybe financing support rolling toward the captive. The problem with visible support like [a rebate program] is once it's announced and put on the hood of a car, all sites like TrueCar and everybody just strip it out. The customer just expects it and it lowers the sales price. That's not the most effective way in my opinion to use incentive support.
How real of a problem was vehicle availability in 2011? The brand's sales still grew 20 percent.
It was absolutely real. Think about this from a dealer's perspective. Every dealer is cut from the same cloth such that we don't want to miss any deals. If you have a consumer who's in the showroom who's there to buy a specific car and you don't have the car on the lot, that's a potential sale lost. You might lose that deal.
The lack of availability is real in the sense that we still can't meet the insatiable demand.
How many cars could Hyundai have sold last year? Could you have sold another 10 percent?
Probably so. If I think about my own store, I sold over 6,200 cars. Could I have sold 1,000 cars more if I had the right cars? Probably so.
So availability isn't impeding performance, it's just limiting potential?
You don't really know what the ceiling is until you hit up against it.
Will Hyundai be able to keep its momentum in 2012?
I guess you have to define momentum. Do I think Hyundai is going to have another year of 20 percent growth or more? No, I don't. They're not going to have enough cars. Do I think Hyundai is going to be able to keep up its momentum in terms of product launches, product successes and continued sales growth? I do. Will it be like 2011? No.
What do dealers think about Hyundai's facility renovation program?
Generally speaking, the response from the dealers has been positive. Hyundai has not made this a mandatory program. It's voluntary, and that's a positive. The majority of dealers feel that the brand is at a much higher level in terms of perception and they know that they need to upgrade, and they're very happy with this program that Hyundai has come out with. It's reasonable, it's manageable and it's voluntary.
How many dealers have signed on for improvements this year?
We haven't had our council meeting this year yet, and Dave Zuchowski usually goes over those numbers at the meeting. He feels that he will continue to see more dealers get on the program. Whether it'll match 2011's numbers, I'm not sure.
How profitable are Hyundai dealers?
I don't remember the hard numbers, but I think the profitability of the dealer body as a whole could have been up about 30 to 40 percent in 2011 versus 2010.
What percent of Hyundai dealers are profitable?
I think it's close to 95 percent.
Have showroom investments cut into profitability?
We've not seen that. I think dealer profitability has been the main impetus for why these dealers are so willing to go and invest these kinds of dollars in their facilities. The profitability has put dealers in a position to take advantage and upgrade their facilities.
Are Hyundai dealers making money on new-car sales?
Historically, Hyundai dealers' fixed operations have underperformed the industry. How are Hyundai dealers' service and parts operations performing now?
Fixed operations have not performed to the dealers' liking, nor to the manufacturer's. Together, the company and the council are looking at strategies to assist dealers and take advantage of the profit opportunity that exists.
One of the biggest reasons, in my opinion, is the average Hyundai dealer has seen his owner base and units in operation grow dramatically in the last 18 months to the point in many places that the dealer, from a facilities standpoint, can't take advantage of this growth.
There are not enough service bays. Not enough techs. You've got more customers.
If you were doing X number of repair orders per day and now you're doing 2X, now you just become an order taker. Now you're just trying to be able to get people through the system to have happy customers.
How widespread is this issue of inadequate service department infrastructure in Hyundai's dealer body?
I'm not sure of the specifics, but I do know it is an issue.
Is the factory asking dealers to build more service bays?
No, nothing to that degree. That might be something to do once some hard analysis is done, but it's really to get the OEMs to refocus and get the dealers focused on the true fixed-ops opportunity.
For the average dealer, the sales growth has been so fast and so furious that maybe some focus was taken away from fixed.
How is Hyundai's certified pre-owned program working?
The dealers that are engaged in Hyundai's CPO program love the program.
One publication voted it the number one CPO program in the industry so the dealers universally think it's great.
How's the relationship between dealers and Hyundai Motor Finance?
Generally speaking, I think it's good. We need to see more competitive non-subvented rates, but HMF has done a great job at building and fortifying relationships with the dealers on the retail and the wholesale side.
How much of Hyundai's sales are being financed by Hyundai Motor Finance?
I think their penetration rate is close to 50 percent. In my big store, it's close to 76 percent. It's dramatically up.
To what do you attribute that growth?
It's from an internal focus of ours to put all of our business with Hyundai and it's Hyundai's commitment to buy as much as possible. Those mutual commitments are working well for both parties.
How difficult is it to get customers financed with Hyundai Motor Finance?
My experience has been that they're extraordinarily flexible throughout the spectrum -- from high FICO scores to low FICO scores. They look with a balanced portfolio approach and I've found them to be very aggressive.
As Hyundai has attracted more affluent buyers, has Hyundai Motor Finance been less inclined to finance less-affluent customers who were attracted to the brand in the past?
I don't believe that Hyundai has lost focus or lost touch with their old customers. I think if you were to do an analysis you'd find that those 700 to 800 score customers that never would have stepped foot in our dealership in the past, those are the folks that are growing our business. We're still getting the lower-tier credit customers, we're just getting far more upper-tier credit customers.
If you could ask the factory to do anything that would help you sell more cars, what would it be?
I would ask, costs aside, "Would you build more assembly facilities in the United States if you could?" It's easy for a dealer to say, "I have customers that want to buy cars, so you need to build more cars," but you and I both know that if you go and make a $1.1 billion commitment and you start spitting out 275,000 more cars, you had better have a place to sell them. In a cyclical business, it might look good today or for the next three years, but at some point it might not look so good.
What has Hyundai told dealers about another plant in the United States?
Not much. They've said that it's under study and that a decision has not been made. As a dealer council, we bring it up and talk about manufacturing capacity, not specifically in the U.S., but overall capacity. We have to rely upon the HMA executives and the leaders in Korea to make prudent financial decisions. How many makers do you know that have made a decision that's come back and bit them in the ass?
We're beginning to see some of the creative work of Hyundai's marketing chief, Steve Shannon, and his team, specifically with the launch of the Veloster. How are Steve and his team doing so far in the eyes of the dealers?
Overall the dealers are very pleased with Steve and the direction from a creative perspective that he's taking with the brand. Specifically with the Veloster, we thought it was pretty creative, a little edgy and consistent with the vehicle itself. So far, so good. We like him.
At the Automotive News World Congress in January, Hyundai Motor America CEO John Krafcik said that the company plans to focus on customer satisfaction. Part of that effort is a sales training program initially designed for Equus dealers. Has the Equus sales and customer relations training your staff received affected how it deals with other customers, too?
When Hyundai came out with Equus training, it was extremely well received by dealers and it was the dealer council that asked to expand the training to all dealers and all vehicle lines. At the end of the day, whether a guy is buying an Equus or a retired schoolteacher is buying an Accent, we all want to be treated at a very high level and be treated how we deserve to be.
Yes, we're selling more luxury cars like the Genesis and Equus, but we're generally speaking to a much higher-level consumer. We want all the dealers to up their game.