Hyundai Capital's Devine: Upscale focus succeeds

LOS ANGELES -- Improved Hyundai and Kia vehicles have led to a boom year for Hyundai Capital America, the lender's top American exec says.

Hyundai Capital steers the operations of Hyundai Motor Finance and Kia Motors Finance, the captive finance companies for Hyundai and Kia brands.

Counting both brands, Hyundai Capital accounted for nearly 4.5 percent of all new-vehicle loans in the first quarter of 2013, up 4 percent from the same quarter of 2012, Experian Automotive data show.

Higher quality vehicles with eye-catching design and better residuals have helped Hyundai and Kia secure more lease business and attract more affluent customers than they did five years ago, says Tim Devine, 52, Hyundai Capital's senior vice president of marketing and sales.

Staff Reporter Ryan Beene spoke with Devine at Hyundai Capital's headquarters in Irvine, Calif.

Q: How has 2013 been for Hyundai Capital?

A: 2013 has been a great year for us -- all-time records in penetration on both sides for Hyundai and Kia with significant portfolio growth. We've been on a pretty steep trajectory since 2008, but it's really been a very positive year.

What's your outlook for the rest of the year?

It's very positive. The capital markets are open, so there's plenty of liquidity. The dealers seem happy and it seems like it will be a good year for us at both Hyundai Motor Finance and Kia Motors Finance.

What have been the big drivers of Hyundai Motor Finance's growth?

Leasing is 40 percent of our total acquisitions, so we do about 60 percent on the retail side. [Growing leasing] was probably the catalyst for us back in 2008 and 2009. In 2008, Hyundai launched the Genesis -- that's a pure lease vehicle. We shifted the strategy to focus on a higher quality customer because the brand was going upscale with all-new design and all-new vehicles. It has worked well for us.

How has the Hyundai Capital customer improved since 2008?

At Hyundai, our average FICO [credit score] in 2008 was 672 and today it's 750 -- a significant increase in the quality of the customer. Kia is a similar story. Average FICO was 699 in 2008, and it's 747 today. And most of our customers, probably 60 or 70 percent, are college graduates or above.

Has Hyundai Capital sought to finance those higher quality customers while doing less business with those lower on the ladder?

Here's a really interesting statistic. In 2008, 49 percent of our customers had a FICO score of 620 or less. Today, it's only 11 percent. So who's coming through the door is just a better quality Hyundai and Kia customer. Obviously, it's probably tied to the better quality of the vehicles.

Today, 77 percent of our customers have a prime credit score, which is 680 or higher, vs. 25 percent in 2008.

What key steps has Hyundai Capital taken to improve its relationship with dealers?

It helps when you have two OEMs who are supporting you with low APR and lease programs, but we've worked really hard. We're not the benchmark captive today, but we have some pretty aspirational goals to get there. We want to be best in class, and I think the dealers feel that. We have great relationships with our dealer councils on the regional and national levels. They've been very patient with us and very proactive with us in their feedback. We've tried to listen to what they say and solve what we can solve.

We've tried to sync up dedicated teams to work with our dealers so the dealers know who their credit buyer is, who their funder is. They know who their sales rep is, so if they need to call them at home on a Saturday night and say "I have an issue," they can do that. The relationship is a big part of our business.

You recently introduced a suite of Hyundai-branded F&I products. How are they working out?

We launched Hyundai Capital Insurance in January of this year. I think it was the right time because most OEMs have their own captive insurance and it was time for us to go down that path. It's been very successful. The dealers have been very patient. They knew it wasn't going to be benchmark right out of the gate, so they've given us time to tweak things on the product side and on the pricing side. We've hired dedicated folks who know the F&I products very well. We've got a little more tweaking to do, but we're pretty hopeful about it.

What kind of penetration rates do these products have?

We're tracking right at about 9 percent on pure new-car VSC [vehicle service contract] warranty, which is great. Our target for the end of the year is north of 11 percent, and we think we'll be able to get there.

Do you have a target for 2014?

An aspirational target is 20 percent. We'd like to get above that and we think then we'll be more relevant in the space and the dealers will have bought into what we're trying to do and we can say that we've been successful.

What have been the most popular Hyundai Capital Insurance products?

Both brands have done a great job at increasing their number of certified [used] vehicles. There's a wrap product you can attach onto that to give them almost bumper-to-bumper coverage and it's really popular with the dealers, especially with the lease returns coming back, so it's a good opportunity. And then, vehicle service contracts bolting onto the warranty provided by the manufacturer.

Which products would you like dealers to embrace more, or which have they been slow to adopt?

GAP [guaranteed asset protection] is always an opportunity. There are a lot of good providers out there that we're competing with and we're a little late to the game, starting this year.

How does subvention factor into what you're doing?

It's probably 90 percent of our business today, which is a good and a bad thing. We'd like to do a little more on our own, but it is what it is today.

Do customers favor leases or financing?

Lease customers are almost always lease customers; there's not a lot of defection. We see some migration of people in longer term loans who might not have liked that lease experience with the negative equity and things like that.

Where are Hyundai's and Kia's lease businesses going in three to five years?

I don't think we're going to do much more than we're doing today. There's a percent of their total portfolio that they want to have as lease business and it's very consistent on both sides. We don't see much more than 40 percent of our business going to lease.

Do you have any plans for branded F&I products for Kia?

It's too early to tell. We need to get the Hyundai side of the business up and running and performing and we'll look at it maybe down the road.

What's your outlook for the next year or two?

We have a great relationship with both Hyundai and Kia OEMs, and they have a strong desire to invest in their captive. What we owe them in return is a phenomenal customer experience and we need to drive customer retention. Those are probably the two biggest things we can do. We've spent a lot of time figuring out how to make that customer experience great -- is it the ease of doing business? Is it enhancing our Web site? Is it going mobile? All of those things we've added to and are still trying to refine.

Retention has been a big part of our business. For our end-of-term process, we have a team in our Dallas center that does nothing but support the two dealer bodies on returning lease customers.

How have you made doing business easier for customers?

Customers love electronic communication, so we've really focused on letting them communicate to us via the Web or via their mobile device. Now they can click on a button, know when their maturity is, tell us what they want to do and we can drive them back to their original selling dealer. The dealers have done a great job, too, at customer service.

What is still needed to aid customer retention and experience?

Both the Hyundai and Kia dealers have done a great job with customer experience. I think the lease customer desires and demands a little more of a seamless process, so when they come in, the dealer already knows them, they can pick out a car and get a contract signed as quickly as possible. We have very high loyalty rates for both brands.

Do you want to do more used-car financing?

We've been a little more laserlike on the used side. We've focused a lot on the certified-used business, and we have about 20 percent to 25 percent penetration on certified used. We also try to support branded products, and that's where we need to be good. We have a lot of returning leases, and we have a strong used-car program for our returning lease products. That's been our focus.

We're still learning the other parts of the used business -- doing nonbranded products, doing older used cars. That's still something we need to sharpen the knife a little bit before we jump in.

How can you improve your certified-used penetration?

We need to do a better job probably in the near-prime space. I think there are a lot of customers out there that were impacted by 2008 and 2009 who are good payers but maybe their FICO was impacted, and we think there's an opportunity there.

What type of customer is Hyundai Capital buying -- superprime, prime and near prime?

If you look at PIN [Power Information Network] data, we're the market share leader for both brands in all three buckets. We don't have a huge appetite for subprime right now. There are a lot of lenders that are coming up now that the capital markets are coming back, so it might be better to let the market take care of those customers versus us.

We try to have a "stay down the fairway" type of approach where what we buy today is what we'll buy three years from now. Our philosophy has always been to be very consistent.

Will Hyundai Capital someday be the size of a Ford Credit or a Toyota Motor Finance?

Those are big companies. Toyota is a $70 billion company; Ford's a $65 billion company. I don't think we'll quite get there, but we'll be fairly close.