LOS ANGELES -- Dave Zuchowski has a full plate of changes and challenges to deal with as CEO of Hyundai Motor America.
He's balancing the launch of the Genesis luxury lineup; a push into green cars with the Ioniq trio and the Tucson hydrogen fuel cell car; a dealer base pushing for more crossovers and higher profits; and capacity constraints for Hyundai's light trucks.
But the industry lifer also has his sights set beyond Hyundai to the automotive space at large, taking stock of the immense changes that millennials, ride-sharing and the expected industry slowdown in 2017 will present.
Zuchowski, 58, spoke with Staff Reporter David Undercoffler last month at Hyundai's North American headquarters in Fountain Valley, Calif.
Q: Hyundai spent significant money on this year's Super Bowl ads. How did that pan out?
A: It panned out good. It's expensive. Everybody knows it's expensive. But the important thing now is it's no longer just about the day. The buildup in the two weeks prior and all the early releases of the spots and then all the postgame analysis and morning show routines, it's really a three-week, almost a full season now.
So we measure it in terms of, obviously, the [USA Today] Ad Meter and things like that. But more importantly for us from a retailer perspective, we look at traffic counts; we look at what happened at Hyundai.com; we look at what happened to all of our related sites; we look at what happened to the dealerships in terms of traffic being generated. And it absolutely, definitely elevates awareness of Hyundai and generated showroom traffic. It's an expensive way to do it, but in terms of getting return on it, it makes a lot of sense.
It particularly made sense for us this year because of the partnership with the NFL and the 50th anniversary, but it's something that we will reserve for certain years. For this year, we launched the Elantra, a really important vehicle for us. And it's a great venue for launching a really important vehicle. So I think we'll use it strategically.
What's the awareness of ride-sharing within Hyundai and the impact that that could have on its business model and new-vehicle sales?
High-level awareness. I would say a lower level of really understanding the extent of the impact on the industry and on Hyundai in total. We look at all of our competitors, and many of them are doing this now where they're either partnering with technology companies or they're doing startups like Ford just announced, and they're getting very involved in that.
We think for us in particular, our product lineup is a great match for ride-sharing and car-sharing platforms ... in terms of the package and the efficiency and all of the things that those types of companies would be looking for in a partner type of vehicle. We think we naturally provide that in terms of good value and high quality and extended warranty and great fuel economy and things like that.
I can tell you that we're paying very close attention to what's going on in the industry. We believe that ride-sharing and car-sharing is here to stay. We believe that it will be a segment that emerges in the market going forward, similar to a commercial fleet type of segment.
Is there a sense that headquarters in Korea has the same level of understanding of the impact this is going to have?
Absolutely. Because, really, it's not just a U.S. issue; this is a global trend. They have been watching this very closely for several years now.
Capacity and allocation are increasing for crossovers at Hyundai right now. What else can and are you doing to increase dealer profitability?
We believe that there are some fundamental changes that are happening in the industry today that we as an industry need to get in front of. We think that the Hyundai DNA is uniquely positioned as a challenger brand to get in front of those. These are demographic types of shifts. We know that there are 80 million millennials out there, and they are finally buying vehicles. About 75 percent -- almost 64 million millennials -- will be buying a new or used vehicle over the next five years.
And we know that they buy and shop completely differently than any preceding generation. And we know that for the most part, they don't like traditional dealership processes. We also know that everybody is trying to improve that, but nobody really has found the answer just yet. And we think that we can do some things in that area.
We're small enough and nimble enough that I think we may have a head up on that, and it's an ongoing conversation we're having with our dealers. And we obviously think that will help profits.
With the possibility that 2017 slows down, what is Hyundai telling its dealers to do and not do?
The really important thing to watch is the inventory build. As inventory grows and production schedules aren't adjusted to recognize market demand, that build means there is an incentive war coming. It may be 30 days, it may be 60 days, but there is an incentive war coming. So I think with all the very painful experiences in 2007 and 2008, I think there's been so far much better production discipline than there has been historically in the industry. And yet if you look at inventories, they are growing.
We are all eternal optimists, and we think next month is going to be better than this month, and we just need to be careful with that. Overproduction feeds over-fleeting; it feeds over-incentivizing; it feeds bad sales practices at the dealership with heavy discounting.
I think what's happened over the last year is that trucks and truck-segment vehicles have remained in strong demand, and everybody's tried to shift their production. And if you look at a total inventory picture, the total inventory looks pretty well-balanced. But if you dig underneath that, you're seeing a lot heavier incentive spending on the car side because we're trying to drive demand where none naturally exists.
And I'm somewhat encouraged because this is all the way to a 17.5 million [unit] industry this year; it's not an easy 17.5 million industry. Earlier in the year, it's been more driven by fleet than it has been by retail and more driven by trucks than it has been for a while by cars. So the industry is up 3 percent, trucks are up 10 percent, and cars are down 5 percent. So it's a tale of two worlds. So I just think from a profitability standpoint, production discipline is critically important.
Are V-8 engines essential to Genesis as a brand going forward?
Not necessarily. We were a leader in walking away from traditional V-6 and V-8. We were the first in the midsize segment to go only with a four-cylinder engine lineup when we came out with the Sonata. Now you'll see a twin-turbo V-6 in the Equus that will be carried out to the other Genesis vehicles. Certainly, it will be available initially, but over time, no, it's not critical.
It's funny: The thought of putting a four-cylinder in a big BMW, nobody would have thought of five years ago, but now it's accepted because you can do such a great job with turbocharging; you can do such a great job with technology to get the performance where nobody misses it.
Let's talk trucks. What's the latest on the Santa Cruz small pickup?
We're still not in a position to say officially what's happening, but we're very positive. Development work is going on. We're waiting to make an announcement. We think it's somewhat imminent, though I know I've said that so many times. But we feel pretty good about it. And a lot of development work is being done.
Is Hyundai's tight production capacity an issue with that vehicle?
We'll figure it out, but part of the issue is where it's to be built. We haven't fully determined that yet. But the actual development work on the platform itself is well underway. We haven't gotten all the questions answered as to where or how many and what markets and things like that to make a formal announcement yet. But stay tuned. ... I really don't think it's very far off.
What about the full-size pickup front, especially in light of the profits that segment yields?
There are a lot of profits, but it's a really tough, tough segment that Ford and Chevrolet and [Ram] do a really good job in. And I'm watching Toyota, who is about as good as it gets, and they've struggled going into that segment. And the [Nissan] Titan is a real truck, and it will be interesting to see how they do in that segment. It's a very well-established segment with really good competitors, and we've been really good at sticking to our knitting and doing what we're good at.