Hyundai Motor America Inc. needs a “diverse product lineup in its SUV segment” if it plans to increase its 4.6% share of a U.S. automarket that looks poised to plateau, industry insiders say.
The Fountain Valley-based automaker, which parted ways with Chief Executive Dave Zuchowski just before the holidays. It named longtime General Counsel W. Gerald Flannery interim president and chief executive to focus on “enhancing the company’s brands, accelerating change for growth and customer satisfaction opportunities in the U.S. market.”
Neither Zuchowski nor Hyundai could be reached for comment on his departure or on an ongoing search for his successor.
“Leadership in Korea is looking at the market overall, and the market position and the growth of direct competitors of Hyundai,” said Karl Brauer, executive publisher of AutoTrader.com, part of Cox Automotive Inc., which also owns Kelley Blue Book in Irvine.
“If they don’t feel like at least they’re keeping up or ahead of those two big statistics, that’s probably what makes them unhappy.”
Zuchowski had led the North American subsidiary of South Korea-based Hyundai Motor Co. for the past three years, and news of his departure surprised dealers across the country, including John Patterson, who owns a group of dealerships that includes Tustin Hyundai.
“I believe he had a good pulse on the U.S. market, and he also understood dealers’ concerns here and nationwide,” Patterson said.
Keeping Up
Zuchowski joined the brand in 2007 as vice president of sales and was promoted to executive vice president of national sales in 2010. Hyundai—offering a lineup of affordable sedans with a reputation for quality—posted double-digit gains at the time—in the middle of the recession.
“They had a very strong value argument that they presented, and that really resonated with consumers during the recession who were looking to spend as little as possible and still get a nice car,” Brauer said.
Hyundai kicked off the growth run under another former CEO—John Krafcik, who now runs Waymo, a self-driving car outfit that’s a new sister to Google Inc. In 2009 Hyundai posted an 8% year-over-year increase, one of the few automakers with a sales jump in what was considered the industry’s worst year in recent memory. Its 2010 sales were up 24%, followed by a 20% increase in 2011. National vehicle sales, meanwhile, dropped 21% in 2009 and rose by a little over 10% in 2010 and 2011.
Brauer also attributes Hyundai’s surge to “market forces” over which the automaker had no control, including a 2011 tsunami and earthquake disaster that struck northeastern Japan and disrupted production by competitor Toyota Motor Co. It also benefitted from the introduction of a “very dramatic restyled Sonata” in 2010, when gas prices hovered around $4 per gallon, and “people haven’t gone crazy for SUVs” just yet.
“I think that might have set a bit of unrealistic expectations back in Seoul,” Brauer said.
The U.S. auto market continued a steady climb from 2012 to 2015 as trucks and SUVs led demand. Hyundai’s sales grew, too, but failed to keep up with the national pace.
“Not being up as much as the market, at least, is almost as bad as being down,” Brauer said, adding that, “It’s the rising tide lifts all boats. When the whole market is going up, it’s almost impossible not to go up a little bit at least, because everything is up. I think that’s what Hyundai’s executives in Korea were frustrated with, thinking, ‘We went up just because the market was going up.’”
The automaker in January 2014 replaced Krafcik with Zuchowski, who’d served as vice president of sales at Mazda North American Operations in Irvine from 2004 to 2007 and was with Ford Motor Co. for 23 years. Hyundai dealers hailed him as a “dealer guy” who “understands the retail business in a way few do.”
Hyundai beat its own sales records under Zuchowski’s tutelage but didn’t manage to get ahead of the pack. The national pace increased 5.9% in 2014 compared with Hyundai’s 0.7%, and posted a 5.7% uptick in 2015, ahead of the automaker’s 5% growth.
Gas Prices
Market forces—a drop in gas prices, an improving economy, the rise of pickup trucks and SUVs’ increased fuel efficiency and popularity—now played against Hyundai, which had the Santa Fe and Tucson SUVs in its lineup but no pickups or smaller crossovers like Mazda’s CX-3, Honda’s CR-V or Toyota’s RAV4. It also had to contend with the perception that it’s a carmaker, not a truck and SUV powerhouse like GMC or Ford.
“It wasn’t like Hyundai had no SUVs, but still that wasn’t their specialty, what they were primarily selling before,” Brauer said. “They went from being a primarily small sedan seller that benefited from that customer base, to trying to become a primarily SUV seller. It’s just not easy to make that transition quickly, both functionally in terms of what product you’re offering, but also from an image base; when [consumers] hear SUV, they think Ford or even Chevy, and now Honda and Toyota because of Highlanders and RAV4s and CRVs and Pilots that have all done really well … And however much people think of Hyundai for SUVs, they certainly don’t think of them for pickup trucks.”
Hyundai dealers would like to see SUV sales represent “at least 50%” of the total, Patterson said, adding that, “Now the ratio, it’s closer to 70% cars and 30% SUVs.”
Trucks and SUVs, meanwhile, represented 60% of U.S. vehicle sales through November, according to New Jersey-based market researcher Autodata Corp.
Hyundai’s 11-month 2016 sales total showed slight promise—it was up 1.3% year-over-year to 707,485 vehicles. Its car sales totaled 511,260, down 7%, while SUV volume was up 23% to 163,896. Overall U.S. sales were flat during the same period. December and year-end figures weren’t available at the time this story went to press.
“Now the only way to really get market share is to take it from others,” Brauer said. “The pie isn’t getting bigger.”
The new CEO “is going to have to do everything Dave was doing already,” he said, adding, “There isn’t this big shift that’s got to be done that’s going to win the day. They have to just keep doing what they’ve been doing—building high-quality, capable cars and doing whatever they can to educate the consumer that that’s what they’ve done. They’ve already pulled a lot of leverage—they’ve got the long warranty, and they’ve been doing better and better in things like J.D. Power quality studies.”
The company, to that end, spun off its new luxury Genesis line last year to draw away part of the luxury market, delivering its midsize G80 sedan to dealerships in August.
IONIQ
Hyundai recently ventured into the self-driving realm with its introduction of Autonomous IONIQ, a vehicle equipped with the LIDAR (light detection and ranging) system, which uses pulsed lasers to map surroundings, plus technology that helps detect nearby vehicles and other objects: blind-spot sensors; a “three camera array” that locates pedestrians, lane markings and traffic signals; and a GPS antenna to spot other cars.
The IONIQ will hit the road this week at the CES consumer electronics show in Las Vegas, where the automaker plans to present “an interactive experience to demonstrate how its hyper-connected car platform, developed with leading global IT company Cisco, will be central to making tomorrow’s lifestyles even more convenient.”
Brauer said the move helps Hyundai “appear to be engaged in that technology revolution that we are all looking at.”
He added, “You are not going to sell any autonomous cars next year, but it is part of an image that will help define you as an automaker that’s really forward looking and has a future staked out in this next evolution of personal transportation. This is an important component of future-proofing the company and making sure [it’s] viable 10 years from now.”
Big Picture
Zuchowski’s departure follows similar executive changes that Hyundai’s parent in South Korea recently implemented at home and in China—its declining markets. Remaining executives have taken a 10% pay cut, the first such move in seven years, according to Reuters. “The group has also downgraded hotel rooms for executive travel, and is encouraging video conferencing as a cheaper alternative to travel.”
Hyundai’s global sales in the first nine months of last year totaled 4.4 million vehicles, down 1.9% year-over-year. Domestic sales dropped 7.2%, and overseas markets were down 1%.
It predicts that “an unfavorable business environment is likely to continue due to stagnant growth in developed markets and economic recession in emerging markets in the fourth quarter,” according to the automaker’s latest earnings statement.
It appears the company means to buck the market trend—and then some.
“Nevertheless, Hyundai Motor will continue its effort to focus on strengthening competitiveness and product quality in the global automotive market. To do so, Hyundai Motor is planning to boost sales of SUVs, Genesis models and new models.”
