Korea

Hyundai's Halo: Car of the Year Award


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The Hyundai Genesis, voted 2009 North American Car of the Year, on display during the first press preview day at the North American International Auto Show January 11, 2009 in Detroit, Michigan. STAN HONDA/AFP/Getty Images

It's not often that any automaker gets good news out of Detroit these days. But Hyundai Motor got a shot in the arm in its campaign to go upscale when its Genesis sedan won the South Korean automaker's first North American Car of the Year award on Jan. 11. With the global auto industry hit by its worst contraction in decades, few industry watchers expect Hyundai to benefit immediately from the honor. Nevertheless, once consumers start buying again, Hyundai executives believe the Genesis will help it gain market share against Japanese and Western rivals. The Genesis, which they describe as a rival to luxury models such as the Mercedes-Benz E-Class, BMW's 5 Series, and Toyota's (TM) Lexus GS, marks "a new beginning" for the company, says Hyundai Vice-Chairman Lee Hyun Soon. "It is a game-changing vehicle which will define our product going forward."

The Genesis, which has been given good points for its luxury touches, smooth ride, and quality—with a price tag beginning at $33,000—beat the Ford (F) Flex, a seven-passenger crossover vehicle, and the Volkswagen (VOWG.DE) Jetta TDI, which were among the finalists for car of the year. Ford's F-150 was named truck of the year. The awards were decided by a panel of 50 U.S. and Canadian automotive journalists and presented at the start of the North American International Auto Show. In 2008, General Motors (GM) won car of the year for the Chevrolet Malibu.

However, the timing of Hyundai's introduction in the U.S. of its first premium model couldn't be worse. While small cars and gas sippers are hot, the Genesis represents Hyundai's biggest sedan, sporting its first V8 engine and its only rear-wheel-drive model. But the company hopes the car will put to rest a past stigma associated with cheap, crude vehicles, giving foreign brands the chance to increase their presence in the North American market before the U.S. auto industry is reorganized.

Less Reliant on U.S. Sales

Sure, the Korean carmaker isn't immune to plunging auto sales at home and abroad. In December its U.S. vehicles sales plummeted 48%; overall, 2008 sales there dropped 14%, to 401,742, slightly better than the industry's fall of 18%. "For the first time in a decade we are experiencing a slowdown," says Jake Jang, spokesman at Hyundai, the fastest-growing auto brand earlier this decade. The company said last week it planned to cut production at its domestic plants by 25% to 30% in the first quarter, except for two lines for small cars.

Yet Hyundai appears better placed to weather the storm. Industry analysts point out that while Japanese auto stalwarts Toyota and Honda (HMC) rely heavily on U.S. sales for their profits, the Korean company is more diversified. Last year, for example, the U.S. market accounted for only 14% of Hyundai's total sales, while China, India, Russia, and Latin America represented a combined 35% of its sales.

A weak Korean currency and strong Japanese yen also give Hyundai a comfortable cushion against falling sales. The Korean won fell against the dollar by 18.7% in 2008 when calculated on an annual average basis, while the yen gained against the greenback by 12.2%. "Thanks to the weak won, our profits this year and last year won't look too bad," says Jang at Hyundai.

Boosting Capacity Overseas

Indeed, corporate analysts figure Hyundai may be able to use the current industry hardship to its advantage. "We are holding Hyundai more than its market weighting, as it is expected to emerge stronger once the global downturn is over," says Ahn Young Hoe, chief investment officer at fund manager KTB Asset Management, which invests some $5 billion in Korean stocks. Seoul-based brokerage Korea Investment & Securities estimates Hyundai posted an operating profit margin of 6.1% in 2008 on sales of $29.7 billion, down from 6.4% in 2007 on sales of $27.7 billion.

If the Genesis can provide the halo effects that company top brass expects, new Hyundai plants overseas could allow the automaker to increase production quickly when auto sales pick up. In the past year alone, it doubled capacity in India and China while launching a new plant in the Czech Republic. "Hyundai is counting on the Genesis to increase its market shares, as Toyota did with the launch of the Lexus LS in 1989," says Suh Sang Moon, Korea Investment auto analyst.

Moon is BusinessWeek's Seoul bureau chief.


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