Restyling Hyundai For the Luxury Market
(Bloomberg) — Hyundai Motor broke into the U.S. market in 1986 with a $4,995 compact car, the Excel. Now the Korean automaker wants customers to buy its models less for their cheap price and more for their stylish looks. After boosting its market share to a record this year, Hyundai aims to build on the gains with more eye-catching designs. The new focus, kicking off with the 2011 Sonata sedan and revamped Tucson crossover, is also aimed at helping South Korea's biggest carmaker command prices on a par with larger Toyota Motor (TM) and Honda Motor (HMC). "The basic idea is a car that looks like a premium car, but not at a premium price," says Phil Zak, Hyundai's head of U.S. design. "We're looking to pull people out of Camrys and Accords and give them something different." Riding a Weaker WonHyundai has bucked an industrywide slump this year with a 6.2% gain in U.S. sales through November, as a weaker won enabled the company to boost spending on marketing while a stronger yen hurt its Japanese rivals. But the Seoul-based carmaker still lags behind Toyota and Honda in terms of brand value, according to analysts. "The establishment of brand equity and identity that can differentiate it from Japanese makers is a key task ahead for Hyundai," says Chung Sung Yop, an analyst at Daiwa Securities in Seoul. Hyundai's gains have allowed it to capture more market share. Through November, it had 4.3% of U.S. sales, up from 3% in 2008. Still, that's less than a third of Toyota's 16.8% share, which trails only General Motors, and Honda's 11%. The Sonata's FaceliftTo narrow the gap, Hyundai began working on a design concept it calls "fluidic sculpture" three and a half years ago. The theme is to hint at speed and the looks of expensive European models. The theme was first applied to the Tucson, which made its debut in September at the Frankfurt Motor Show. The concept is also used for the revamped Sonata, which goes on sale in the U.S. in January to compete with Toyota's Camry and Honda's Accord. The new Sonata is longer, wider, and lower than the previous version, with extended headlamps and a large chrome grille. The design strategy is already paying off as Hyundai's sales got a lift this year from the Genesis, a competitor to premium sedans, including Toyota's Lexus and Daimler's (DAI) Mercedes-Benz. Genesis, named 2009 North American Car of the Year at the Detroit auto show in part for its styling, is Hyundai's first in the U.S. that lists for more than $40,000. Hyundai sold 12,141 Genesis sedans in the U.S. this year through November, up from 6,167 a year earlier, following the car's June 2008 introduction. "If you're just competing on price, and consumers have no emotional connection to the car, they'll buy the best deal," says Zak, 44, a designer with GM's European unit before he arrived at Hyundai's studio in Irvine, Calif., in March. A Plus For Hyundai StockThe new Sonata alone may boost Hyundai's U.S. sales as much as 15% next year, and total U.S. sales may top 500,000 units in 2010, says Daiwa's Chung. Stephen Ahn, head of research at LIG Investment & Securities in Seoul, estimates U.S. sales of the model may jump 40% from the previous version, to 170,000 next year. "The success of this new Sonata in the U.S. will be the touchstone for whether Hyundai can really transform itself into a leading global automaker," Ahn says. "Sonata's sales performance will be a catalyst for Hyundai's share price." Price is still part of Hyundai's U.S. appeal, however. The current Sonata, introduced in 2005, starts at $18,700 vs. $19,395 for a base Camry and $21,055 for the entry-level Accord. To command higher prices, analysts note, Hyundai must keep raising quality as well as design, following the trail blazed by Japan's carmakers. "They are making the same type of consistent progress that happened with Toyota and Honda," says Stewart Reed, head of transportation design at Art Center College of Design in Pasadena, Calif., and a former designer for Toyota, GM, and Chrysler. The number of potential U.S. buyers who say they'd "definitely" consider a Hyundai has tripled from the early part of the decade, to 15%, says Alexander Edwards, head of auto research at San Diego's Strategic Vision. By comparison, 50% say the same about Toyota and Honda. "Honda and Toyota lead in consideration because they're perceived as having reliable, safe vehicles," he says. "Hyundai is moving, and the fact that it continues to rise while Honda and Toyota are pretty much stuck where they are means they need to be concerned." Earlier this year, J.D. Power & Associates gave Hyundai the highest ranking among nonluxury brands in its initial quality survey, ahead of Honda and Toyota. "It's their time to shine," says Tom Matano, a former general manager of design at Mazda Motor who is now director of industrial design at San Francisco's Academy of Art University. "When the whole lineup reaches a certain quality level, brand value increases, brand trust goes up, and then volume goes up." To contact the reporters on this story: Alan Ohnsman in Los Angeles at firstname.lastname@example.org and Seonjin Cha in Seoul at email@example.com.