Kia's seemingly unstoppable growth trend proved to be stoppable in 2013 with the brand posting a 4 percent sales decline.
The slip came despite the launch of redesigned versions of the Forte compact car lineup, the Soul subcompact and the new Cadenza upscale large sedan. Kia hopes those products will spark a rebound in 2014, when the brand goes even further upscale with the first-quarter launch of its new K900 flagship sedan.
Don Hobden, a Kia dealer with six rooftops and the brand's dealer council chairman, spoke recently with Staff Reporter Ryan Beene about Kia's performance last year and what its dealers face in 2014.
Q. How was 2013 for Kia dealers?
A. I think in general it was a very good year. It wasn't a record year, but from a net profit perspective as a group, it was one of the best three years we've ever had.
Kia posted a sales decline this year, despite launching many new models. What happened?
The Reader's Digest version is that other manufacturers were a lot more aggressive in 2013 than they were in 2012. Honda, Toyota, Nissan, General Motors, Ford -- they spent, at least it seems to me, a lot more money in marketing, especially in the last half of the year, and they spent a lot more money in incentives, too. That's my take.
Kia just didn't keep up?
I think they managed it pretty well. At a 3.5 percent market share, I don't know when it makes sense to really pour incentive money out there that's really going to damage your lease residuals long term. I'm not smart enough to manage that, but that's what I think. I think they were very cognizant of what was going on in the market. That's what they communicated to us, and that they were trying to protect the value of the brand.
What major issues do Kia dealers face?
I really expect 2014 to be better because Kia doesn't have near the number of product launches this year that we had last year. We had seven new launches or substantial model changes last year, and I think the only ones I'm aware of this year are the K900, which will be a waved launch, and the Sedona comes late in the year.
I haven't had a council meeting since September, but I think that probably what has happened in the past is after a year of lots of launches and changes, the following year it picks up. It costs a lot of money to launch a new model or a redesigned car, so I'm hoping that they can apply a lot of that marketing budget to more brand-awareness-type marketing at Tier 1 that will help Tier 2 and 3 drive traffic.
That'll be my input when I go to Orange County, I can tell you that.
Are Kia dealers profitable?
Very much so. I don't have the statistics yet, but the last time we met, dealer profitability was very, very good. I don't remember the exact percentage but it was well over 80 percent.
What are your thoughts about the K900?
It's going to be a flagship car, which will really help to improve the brand image. I had an opportunity when I went to Korea last year for a dealer council meeting for three or four days to ride around Seoul in a K900, and I think the car is amazing. And if it comes in in the price range that I think it should, I think it's going to be really competitive. It's a very comfortable, high-quality, V-8 rear-wheel-drive sedan, and I don't know what technology exists that is not in that car. It was a very impressive ride, very quiet, great acceleration. I was pretty enamored with it, and my wife cannot wait to get one.
Customers have a lot of options in the $50,000 to $60,000 price range, and sometimes they want the prestige of a Mercedes-Benz or BMW. Who do you expect to buy the K900?
I think you hit the nail on the head. But I think there is a segment in there that will do some comparison shopping and find out that they can save, I don't know, $5,000 or $15,000. The K900 will go on their shopping list. That's my hope. We're going to have the K900 in Wave 1 at our east end store in Louisville. My plan for that car is to do some branding of the car in some high-end magazines and to do a lot of digital marketing for it and I think there will be a really good value message there.
I also think that in the past, when we went from the Optima EX to the SX to the SX-L and then the Cadenza, we had a lot of success with our own database coming back in to see those new models and trading in and upgrading. A lot of brand loyalty has developed to this point for Kia, to where a guy who bought an LX or EX model is coming back in to look at the higher-end stuff now.
I would tell you that the majority of those cars that we sell are to customers in our database. They're not conquest sales, so I would look for more of the same with the K900. At all of our stores, we have a number of very affluent buyers who could buy whatever they want, but they're value-conscious.
I don't know what production capacity or what availability there will be on that car yet, but I would hope that it's a manageable number. From my perspective, I think it's worth the initial capital investment, at least at one store, to get in on the ground floor to be able to promote that flagship car. I know a lot of effort has gone into the design and planning and in the detail work on that car. It's just gorgeous.
What are your thoughts on the showroom improvement and training package for the K900? It's about $40,000.
I think it's an expensive capital investment, but as the brand moves upward, just as Infiniti was to Nissan, Lexus was to Toyota and Acura was to Honda, I think it's a much better strategy than requiring a separate point for the Cadenza and the K900 and what may or may not follow. I think an investment like what KMA is requiring in order to sell the car fits well in terms of training the dealer principal, the general manager, the service manager and sales manager and salespeople. It's a very comprehensive and detailed training program from what I've heard. Unfortunately I haven't been able to participate myself because of the weather, but I'm very excited about going and seeing what Kia's total vision is for the car. It's a better alternative than what some manufacturers did when they expanded for where we are in terms of market share, sales and capacity.
Given that Kia's sales declined in 2013, do you think the brand is moving into high-end territory too quickly? Should it focus more on mainstream models?
I don't think so. If the average days' supply of the volume models had stayed the same in 2013 as it was in 2012, [it might be problematic].
In 2012, dealers were running in the low-20s days' supply but we didn't have that this year. There was product availability across all the lines, so I don't think they took their eye off the ball at all. Back to what I said earlier, I think the market was that much more competitive.
Going into the NADA make meetings, do you expect dealers to ask for more incentive and marketing support to better keep up with bigger brands that are spending more?
In 37 years, I've never been to a meeting where they didn't ask for that, whether it was for Chevy or Kia, Nissan or Chrysler.
If dealers ask, will it be the usual requests for increased funds or do they really need more support?
I think parts of it are warranted. I also think there's a whole lot of standard par-for-the-course dealers asking for more.
I'd like to see us pick some fights this year. Maybe we pick a fight with the Forte. Maybe it's one trim level at a time. What I'm not smart enough to know is how you do that without hurting your residual values, and those residual values are more important to us today as Kia dealers than they ever have been. I think the Kia brand is holding its value as a used car as well as just about anything in the market in those price points.
I just don't want to see those values prostituted because long term, the strategy Kia has is good for the brand. But I do think we could go out on the field and pick more fights.
What's your opinion of Kia's marketing over the past year?
I'm very happy with it. I think it's very creative and I think that for the size of the company they do a great job. I alluded earlier that I think it's a lot more costly from a marketing perspective to launch new product and KMA has done a great job keeping our product fresh. I think the marketing department does an incredible job.
Should anything be done differently?
I'd like to see more of it. I think it's very good, but when I say more of it locally Tier 3, I'm talking about spending another $100,000 to $300,000 in our market. But when you say that nationally, I'm sure you're talking about tens of millions of dollars.
I don't think that anyone -- the dealers or KMA -- is content at a 3.5 percent market share, and I think the only way to get more is to buy some more.
Industrywide, the certified pre-owned market outperformed the new-car market last year. How has Kia's CPO program worked for you?
It's helping in a lot of different ways. It's helping in our fixed operations with the additional throughput we get. Our used-car volume is up. This year we were about at a 2-to-1 selling ratio of new to used, and in 2012 we were closer to 3 to 1.
What are Kia dealers doing to attract more service business? Is the factory helping?
The factory is helping. They have Customer 360, they have One Command, database marketing, lots of programs that they kicked off for dealers. They are always talking about improving our fixed absorption and taking care of a customer when they come in and not overselling them, and we buy into that. So it's pretty good.
Our fixed departments in general saw nice increases in customer pay. Warranty stayed about the same or declined a hair.
What are Kia dealers doing to attract more F&I business?
We're leasing more cars than we ever have. Our stores ranged in the fourth quarter in lease penetration from 20 to 40 percent. Our penetration year over year with Kia Motors Finance has gone up.
On a lease customer, you can't sell GAP or an extended service contract because customers don't want it, so we've kind of reinvented ourselves and now we're selling maintenance plans, tire and wheel plans and paint sealant and fabric protector in order to offset that loss in income from leasing, so our F&I numbers are actually up year over year.
Kia has added quite a bit to its vehicle lineup, especially on the high end. What is missing?
Maybe a full-sized SUV. I think the majority of Kia dealers would like to see a pickup truck. But my opinion of that is that is so competitive and so incentive-driven because of GM, Ford and Dodge and the huge customer rebates on their trucks. I don't know how you would start with a new product from Jump Street and compete.
I think most dealers would tell you they want a pickup truck or an SUV. I'd be perfectly happy if they brought back the Borrego. I could sell those as fast as I could get them.