Hyundai resists the allure of retail temples for Genesis

DETROIT -- As they prepare to launch the Genesis luxury brand, Hyundai's top U.S. executives are determined to resist the auto industry's edifice complex.

In setting up a retail network for the new marque, Hyundai is charting a different course from that of European luxury brands, whose showrooms typically cost tens of millions of dollars, or, in the case of flagship stores in Manhattan, more than $100 million.

"Someone's got to pay for that, and it's the customers," Mike O'Brien, vice president of corporate and product planning at Hyundai Motor America, said in an interview.

So instead of requiring its dealers to build costly Genesis showrooms, Hyundai plans a case-by-case approach. The thinking is that by saving money on capital improvements, Hyundai and its dealers will be able to invest more in technology and a convenient customer experience.

"With the digitalization of our world and online shopping and things like e-contracting, more and more can be done at the customer's residence or place of business," said Dave Zuchowski, CEO of Hyundai Motor America. "The complete reliance on facilities to define luxury is changing, and we need to be careful with that."

Hyundai needs a plan in a hurry.

A Korean plant will start building the 2017 Genesis G90 in May, with the first cars arriving in the U.S. in midsummer. At the same time the current Hyundai Genesis sedan, renamed the Genesis G80, will get a freshening for the 2017 model year.

Next is a BMW 3-series rival called the G70, riding on a compact, rear-wheel-drive platform called IK that also will underpin a successor to the Genesis Coupe and a crossover. The last piece of Genesis' planned lineup, another crossover, will ride on the rwd DH platform that underpins the Genesis G80.

In the U.S., with its state franchise laws designed to protect car dealers, Hyundai must tread lightly in building out a Genesis retail network. Zuchowski said dealers will still be allowed to sell the G80 after the mid-2016 freshening.

Hyundai has separate covenants with 405 of its 830 dealers requiring them to meet sales and service requirements to sell the current Equus. Zuchowski said these dealers will be allowed to sell the Genesis G90, for the time being.

"As we bring out the G70 and its derivatives," he said, "that covenant may change."

Zuchowski projects that in 2020, when Genesis has a six-nameplate lineup, the brand will sell 90,000 vehicles a year in the U.S., up from the 33,706 units of the Genesis and Equus that Hyundai sold in 2015.

Such sales volume may be enough for dealers in larger markets to justify spinning off the Genesis brand into a stand-alone showroom. In the U.S., Hyundai sells 64 percent of its luxury cars in just 10 markets. But while a stand-alone Genesis store in Los Angeles should make sense, a stand-alone store in Cleveland might not.

"In 2020," Zuchowski said, "there will be Genesis dealerships that are completely independent. There's going to be dealers with a separate sales facility but shared service. There's going to be dealers with a showroom within a showroom. It'll be a hybrid approach based on market size and market potential."

Hyundai's U.S. executives are building a menu of premium services for Genesis buyers, in search of a package with the best return on investment, O'Brien said.

The company is looking at door-to-door valet service for repairs, as it offers for the Equus. Hyundai could, for instance, offer unlimited valet service for the G90, and limited valet visits for other nameplates. The company is also toying with out-of-the-box ideas such as offering a lifetime warranty or lifetime service with the purchase of a vehicle.

Other luxury brands have invested in expensive temples to make the dealership environment more pleasant, and require amenities such as comfortable, stylish chairs, and espresso machines. Hyundai wants convenient services to replace such costs.

"How do we make the customer's interaction with us something that they look forward to," O'Brien said, "instead of something they dread?"