Genesis plans clean break from Hyundai

LOS ANGELES — Hyundai's fledgling Genesis marque wants out of the nest — now.

This month, the brand plans to announce a new retail strategy for the U.S. that will accelerate its separation from the Hyundai marque and significantly cut the number of dealerships authorized to sell Genesis models.

The transition, which was supposed to be several years off, likely will be messy and costly for Hyundai and the culled Genesis dealers. It comes less than two years after Hyundai announced the creation of the Genesis brand, barely a year after it officially put the G80 and G90 sedans on sale and just ahead of the launch of a critical new vehicle, a BMW 3-series fighter called the G70.

And it will require a delicate dance by Hyundai Motor America to protect its relationships with castoff dealers, who will retain their Hyundai franchises after the dust settles.

"We don't see a path forward without a good, strong dealer network that's also profitable," Genesis General Manager Erwin Raphael told Automotive News. "And we sometimes have to make 

very difficult decisions in the short run in order to ensure that we take care of our ... dealers in the long run."

Genesis plans to have the framework in place by the middle of next year, it says.

The planned reset comes amid a debacle in Louisiana, where Hyundai Motor America last month grounded all sales of Genesis vehicles after allegations from the state’s Motor Vehicle Commission that the automaker and the dealers lacked proper licenses to sell vehicles under the new brand. A month earlier, dealers said, Hyundai had outlined plans to trim its Genesis network in the state to just two dealers from 13.

The automaker has nearly completed the paperwork to put it in good standing with the commission, Raphael said, attributing the problem to a hasty ramp-up.

Genesis’ retail network is a bit of a tangle, owing to its awkward start as a Hyundai nameplate and then a distinct brand that absorbed two Hyundai luxury models. Hyundai allows any of its 835 dealerships nationwide to sell the Genesis G80 sedan, which was formerly called the Hyundai Genesis. Of those stores, 352 also have opted to carry the larger G90 sedan, which requires them to create a showroom-within-a-showroom for the Genesis brand.

This select group emerged from Hyundai’s efforts to create a special retail environment for a top-of-the-line model that was called the Hyundai Equus before Genesis became its own marque.

Under the original plan, Genesis-only stores were to be phased in two to three years after Genesis started selling vehicles last August. Genesis planned to use them concurrently with the showroom-within-a-showroom setup, along with some dealerships that had separate sales facilities for Hyundai and Genesis but shared service centers. Those Hyundai dealers selling the G80 were then to be phased out when the next generation of the car arrived around 2019.

The updated plan moves that timetable forward by one to two years and will focus solely on separating the two makes, though details haven’t yet been made available to dealers, Raphael said.

It will shift from the store-within-a-store approach to a distinct Genesis presence.

Hyundai dealers will be allowed to apply for Genesis franchises, with priority given to locations in and around urban areas.

Only full Genesis franchisees will be able to do warranty repairs on Genesis vehicles, a condition that’s certain to be a sticking point with dealers, who had expected to be able to do factory-paid warranty work on Genesis vehicles under the previous plan.

"For this brand to really survive and thrive, and for us to develop the culture within ourselves and within our dealer network to support and take care of these customers, we do in fact have to expedite our process of separating our brands," Raphael said.

Genesis has sold 11,563 vehicles this year through July.

Raphael declined to say how many stores Genesis wanted, though the number is expected to be significantly smaller than the 352 that carry the G90, according to several Hyundai dealers.

Genesis has retained outside legal counsel — which it declined to identify — to help it extricate itself from agreements with dealers who invested considerable time and money in the Genesis brand. The automaker also has hired a trio of outside consulting agencies to help it properly set up the new dealer plan, a spokesman said.

Raphael said the decision to fast-track Genesis’ separation came after feedback from Genesis dealers indicated that a smaller retail network was necessary to maximize profits.

He also cited data from customer clinics showing that buyers disliked the idea of shopping for a $50,000 or $60,000 luxury vehicle at a Hyundai showroom amid Elantras and Accents.

That posed a sensitive problem as Genesis prepares to launch its first new vehicle, the G70 sedan, which is expected to debut this year and be on sale in the U.S. in early 2018. Raphael said the timing of the new strategy wasn’t tied to the G70 launch.

Trimming the dealer network has long been a goal of Genesis execs. The problem, Raphael said, is that while most Genesis dealers agree on the need for fewer storefronts, no one wants to give up the franchise.

That much was clear to execs even at the dawn of Genesis, which raises the question of why the company required retailers to spend thousands of dollars on dealership improvements, new hires and training, service and parts upgrades and marketing, only to have to scale them back later.

The answer, says Andrew DiFeo, chairman of the Hyundai National Dealer Council, was haste in getting the luxury brand off the ground.

"The directive to launch the brand trumped that," said DiFeo, whose St. Augustine, Fla., Hyundai store carries Genesis vehicles. "At the time, this was maybe the easiest, least-painful route in the short term. But it affected the brand negatively in the long term."