Determined not to let hard-won market share gains slip away, Hyundai Motor America CEO Dave Zuchowski is redirecting marketing dollars and asking for a bigger budget from his bosses in Korea.
The plan calls for scaling back regional advertising and bonuses for salespeople, giving Hyundai some of the cash it needs to compete with reinvigorated Detroit 3 and Japanese automakers on the national level.
Zuchowski disclosed the strategy to dealers during a conference call Dec. 2, the day Hyundai reported a 4 percent drop in U.S. sales for November. He confirmed the changes in an interview last week and said he is asking Hyundai Motor Co. for extra resources to help the Korean brand compete in the U.S.
"We're growing at a rate that's slower than the general marketplace," Zuchowski told Automotive News. "To grow our share, and continue to grow our volume in an exceedingly competitive market, it requires greater investment to keep pace with where our competitors are at."
Hyundai has lost a half-percentage point in U.S. share in the past two years -- after a big run-up that began in 2010.
Like most automakers, Hyundai subsidizes dealers who band together for regional, or Tier 2, advertising -- usually commercials on local TV stations.
This year, Hyundai chipped in cash for 86 Tier 2 groups. Hyundai will now pull funding from all but the largest 50 markets, which deliver 75 percent of the brand's U.S. sales. Dealers in the other 36 markets will still be able to run Hyundai-produced commercials, but they will need to foot the bill.
"In a perfect world, you'd have enough money to be in every market in the United States, but there aren't any makers that are," said Scott Fink, CEO of Hyundai of New Port Richey near Tampa, Fla., whose six-year tenure as chairman of Hyundai's dealer council ends this month. "Even Toyota, the juggernaut, is not in 86 markets."
Hyundai is also scaling back an incentive program called STAR that pays salespeople up to $200 for each new vehicle they sell.
Incoming dealer council chairman Adam Kraushaar, president of Lester Glenn Auto Group in Toms River, N.J., said the program was unusually generous, paying 10 to 20 percent of earnings for his salespeople.
Critics inside Hyundai felt the program was shifting payroll costs from dealers to the factory without fulfilling its stated purpose: reducing turnover.
Hyundai will now change the program so a salesperson must sell six vehicles, not one, for the bonus to kick in. The top payment will drop from $200 per car to $175.
Zuchowski wants to increase Hyundai's "share of voice" in national advertising, which he said is "now at 4.1 or 4.2 percent," so it is equivalent to the brand's market share of around 4.4 percent. Higher incentives may also be in the cards.
"No matter how great your products are, you absolutely need to make sure you're competitive with transaction prices," Zuchowski said. "Over the last couple years, our relative position has weakened -- not as a result of actions on our part, but on the part of our competitors with very, very unusually generous programs."
Zuchowski, who replaced John Krafcik as CEO of Hyundai Motor America on Jan. 1, also has shown signs that the brand's approach to national advertising will change.
Early in Krafcik's tenure, Hyundai was successful with a campaign promising recession-struck customers that the company would buy back vehicles from those who lost their jobs. That was followed by a campaign touting America's most fuel-efficient lineup.
The recession ended, and Hyundai had to drop the fuel economy message when U.S. regulators slapped Hyundai and Kia for overstated fuel economy numbers. Since then, critics say, Hyundai has muddled along without a consistent message.
Hyundai's marketing chief, Steve Shannon, left the company in November. Zuchowski said he plans to hire a replacement within a month or two.
"That's just one position that I don't want to leave open," he said.
Other changes may be in the works. Sources close to Hyundai's corporate-owned advertising agency, Innocean USA, say Innocean COO Brad Fogel was recently removed from the Hyundai account. The sources say Fogel is still working with other clients. A spokeswoman for Innocean declined to comment.
Zuchowski must avoid angering dealers, who have watched profits erode as some rival brands have outspent Hyundai on incentives.
"The bottom line is, we need to trade at a discount to the Japanese," Kraushaar said in an interview. "At this point in Hyundai's history, we are not on parity with those guys, and that's where we're priced right now."
Is Zuchowski taking money out of dealers' pockets at just the wrong time? Fink and Kraushaar say they've heard some grumbling from retailers but that dealers largely understand the strategy.
Zuchowski said he shares dealers' desire to sell more cars.
"At the end of the day, our objectives are exactly aligned," he said. "We think what we're doing this year is going to get us there."