Hyundai, seriously

LA JOLLA – Has it really been 20 years since South Korean automaker Hyundai stormed the U.S. market with its low-price Excel? That car, priced from under $5,000, was the best-selling car in California in 1987.

Has it been just 17 years since Excel became a late-night TV laughingstock with its poor reliability record? Jay Leno, quoted in Time magazine, joked that high gas prices of the late ’80s only pleased Hyundai owners, as a full tank doubled the value of their cars.

Today, Hyundai offers a crossover utility that it says compares to a Lexus, and can cost as much as a car from that luxury brand or one from BMW. Hyundai will come to market next year with a rear-drive, V-8 sedan that many would consvider a luxury car. And the car maker says it’s studying whether to launch a luxury division, similar to Toyota’s Lexus or Nissan’s Infiniti brands.

The symbol of that self-improvement, those years of transformation from abhorred to admired, is the Veracruz. The seven-passenger crossover-utility vehicle was exhibited last month on the lawn of the tony Lodge at Torrey Pines, a Craftsman-style, five-diamond resort hotel where the rooms go for about $500 a night.

Hyundai has seen large sales volume boosts over the past decade and regularly wins accolades for its improved quality. Still, the Veracruz – its virtues and its price – can be shocking.

“I can say that I’ve driven a $38,000 Hyundai and I never really thought I’d say that,” said George Peterson, president of AutoPacific, an auto-industry researcher with offices in Tustin and Southfield, Mich. But, in back-to-back drives with the Lexus RX 350 SUV, the Veracruz “feels at least as good or even maybe better,” he said.

Debut of Genesis

Before most were even aware the Veracruz was on sale, Hyundai Motor America unveiled the Genesis, a large, rear-drive sedan that arrived in concept form at last week’s New York Auto Show. It featured a 4.6-liter V-8, a navigation system, eight air bags and more. Unlike some pie-in-the-sky concept, this one goes into production about a year from now.

“We’re an ambitious company with ambitious, aggressive objectives,” said Steve Wilhite, who as Hyundai Motor America’s chief operating officer is the company’s top non-Korean executive. “We’ve got a terrific product line and we’re doing things necessary to grow our business.”

And one of those things, conveyed in a conversation with Wilhite, the former Nissan, Volkswagen, Ford and Apple executive who joined Hyundai in August, might be establishing a luxury brand, a la Toyota’s Lexus or Honda’s Acura.

“We’re a company that isn’t bashful about exploring that space,” said Wilhite. “It’s very hard today as a global player, to look at the market, and to look at what our competitors have done, and not be intrigued by the luxury market and luxury branding.”
Peterson, the analyst, thinks it’s a done deal.

“They are considering another platform or two to populate an upscale second channel, to take Hyundai into the premium luxury car area,” he said. “Boy, these guys are ambitious. They have their pedal to the metal.”

When it arrived in the mid-’80s, Hyundai quickly became one of the most successful new automotive nameplates in U.S. history. But, within a few years, Consumer Reports pilloried the Excel for its poor quality. There was even a song parody, “Crappy Hyundai,” done to the Bangles’ tune “Manic Monday.”

The brand retrenched, made improvements and slowly began rebuilding consumer confidence. This year, Consumer Reports gives four 2007 Hyundais its coveted checkmark recommendation. (The Veracruz is too new to be rated.) The brand ranked third, only behind Porsche and Lexus, and ahead of Toyota and Honda, in J.D. Power’s 2006 Initial Quality Study.

Rapid sales growth

Hyundai, which totaled 108,468 sales in 1996, reached 455,520 in 2006. That’s 320 percent growth. Toyota, which most observers see as the most successful car brand in the United States, grew 77 percent over the same time period. Hyundai dealers sold 42,000 vehicles last month, its best March ever. That total includes 178 Veracruz models.

Just two or three years ago, affordability and an industry-best 10-year powertrain warranty were the Top 2 reasons people bought a Hyundai, said John Krafcik, its vice president of product development and strategic planning.

This year, as Hyundai has added a minivan and a three-row SUV and made stability control technology that prevents rollover accidents standard throughout its lineup, safety has become the No. 1 purchase motivator.

The government and the insurance industry all endorse stability control. Krafcik says 73 percent of Hyundai vehicles sold this year have the technology, vs. 22 percent of Toyotas and 45 percent of Hondas.

“We’re the leading popular brand in that technology,” he said. “Unfortunately, nobody knows that yet.”

Wilhite also makes this point. “The great news for us is that we have wonderful stories to tell. I mean, we don’t have to make stuff up about our brand or our products,” he said.

The company can talk about quality, safety, its expanding lineup, its increasing investments in the United States.

Still, Hyundai remains a secret to many. The number of people who said they are aware of Hyundai and would consider buying one has doubled since 2003, but that growth is from 11 to 22 percent. Honda and Toyota score in the 60s and 70s, Krafcik said.

Hyundai buyers believe they’ve made a smart purchase, but they’re rather quiet about it.

“We need to turn them into brand evangelists and advocates,” Wilhite said.

The Veracruz could help. More stylish than rivals such as the Honda Pilot and Toyota Highlander, it seats seven, has a 260-horsepower 3.8-liter V-6 and the brand’s first six-speed automatic transmission. Six air bags, stability control and XM satellite radio are standard. All-wheel drive, a power lift-gate, rear-seat DVD entertainment are options or found standard on some trim levels. Prices range from $26,995 to $34,695 before options.

“(Veracruz) gives us a real nice entry into a growing segment of the market, the mid-size sport-utility crossover vehicle,” Wilhite said. The company expects the segment to expand by 50,000 to 100,000 units a year through 2011.

Some stumbles

Yet not all is rosy for Hyundai. Its sales volume grew a scant 0.01 percent between 2005 and 2006. Executives blame a strike that limited the supply of four-cylinder engines.

Automotive News recently reported that Wilhite sent a strongly worded letter to 50 under-achieving dealers. The company has 754 U.S. dealers.

nd the embezzlement conviction of Chung Mong Koo, chairman of Hyundai’s parent company, has been an embarrassment and has resulted in the slowdown of some management decisions, such as the Georgia factory for its Kia affiliate and its recently announced second engine factory in Alabama. Hyundai opened a U.S. plant that makes the Sonata sedan and Santa Fe sport-utility in Montgomery in 2005.

Wilhite praised Hyundai for listening to its U.S. executives. “We don’t have carte blanche, but our voice is heard,” he said.

He also notes that Seoul is the most wired city in the world, and that South Korean consumer-electronic companies such as LG and Samsung are now being recognized for their innovations, and not just their ability to make commodity products.

“It’s an incredibly robust, dynamic, innovative environment,” he said. “But it’s not in alignment with Americans’ perceptions.”

By Matt Nauman
Mercury News