Hyundai Weighs Adding Luxury Models, Separate Brand

Hyundai Weighs Adding Luxury Models, Separate Brand
http://online.wsj.com/article/SB10001424052748703296604576005463886439544.html


Hyundai Motor Co. may add two luxury models and create a luxury brand that would likely be called Genesis to compete directly with Toyota Motor Corp.'s Lexus and other upscale makes, Hyundai's top U.S. executive said.

Equus sedans at a port near Hyundai's Ulsan, South Korea, plant.
The South Korean auto maker, which has boosted its U.S. market share 50% in two years, is evaluating whether to build a four-door sports car akin to BMW AG's 3 Series as well as a crossover utility vehicle like the Lexus RX 350.

Hyundai already sells the full-size, upscale Genesis sedan and this month will begin selling in the U.S. the ultraluxury Equus model, which starts at $58,000. It is unclear where else in the world the potential new models might be sold.

There are three branding scenarios under consideration. The most likely is to create a subbrand called "Genesis," and sell the models under the same dealership roof as Hyundai but in a separate part of the showroom, possibly with dedicated salespeople, said John Krafcik, the president of Hyundai Motor America.

The other scenarios are to keep the premium cars badged as Hyundais, or—in the most ambitious move—spin off the brand into separate dealer facilities, much like Lexus or Honda Motor Co.'s Acura, Mr. Krafcik said in an interview.

Creating a luxury brand could more firmly make Hyundai a power in the U.S. market, where it has grown faster than any other car maker in the past two years. Much like Toyota of 20 years ago, Hyundai is taking market share with reliable, inexpensive and stylish cars.

But creating a new luxury brand has risks in a car market already overcrowded with nameplates.

"One of the keys to this plan is how well the Equus does," Mr. Krafcik said. "We don't need to make a decision for some time" on the branding question.

Mr. Krafcik said he wants to be open to all options, but has some concerns about spinning off the brand. It would costs millions of dollars to create a new network of dealerships, adding pressure to increase sales for the brand and to raise prices.

He estimated separate dealerships would require the company to obtain about $6,000 more revenue per each car these outlets sold.

"I think the strategy of basically having a subbrand is probably the right one," said Michael Robinet, an analyst with IHS Automotive.

Scott Fink, who owns two Hyundai dealerships north of Tampa, Fla., agreed. He said he already thinks of the Equus and Genesis sedans as part of the "Genesis brand."

"The dealers are excited about the Equus, and it being the lynch pin for this Genesis brand," Mr. Fink said. "We feel like we can do what others have been unable to do. We think we can sell a luxury brand within the house of the mainstream brand."

About 250 of Hyundai's 800 dealers are set up to sell the Equus. They are required to have a "sales champion" who is trained to sell the car. Hyundai also is setting up a system to bring the car to customers' homes to sell it rather than have the shoppers come to the showroom.

The Equus is meant to compete against the top-end models from Daimler AG's Mercedes-Benz and Lexus, but costs 30% less. That would generally be the pricing model for the Genesis line.

Last month, the Genesis sedan, which starts at $33,000, outsold the Audi A6 from Volkswagen AG—which goes for $45,200—in the U.S.

Other car makers have gone to great lengths to separate their volume brands from their luxury counterparts. In addition to Toyota's Lexus and Honda's Acura, Nissan Motor Co. sells its Infiniti brand in separate dealerships. And VW has been splitting its joint VW/Audi franchises. Audi executives have said the stand-alone stores perform better than the ones paired with VW models.

"Four models [from Hyundai] is right on the edge of needing a separate franchise, about where you would be at where you have your toe in the water, but you haven't jumped in," said Randy Berlin, global practice director for auto dealership operations for Urban Science, a consulting firm that works with dealerships.

"If you do have a choice, the preference would be to have a stand-alone so it can have its own brand image, its own brand experience so it could distinguish itself in the market."

interesting concept, i wonder if this will really fly..