Bloomberg News

Hyundai Puts Quality Advances Ahead of 2012 U.S. Sales Goals

January 10, 2012

(For more Detroit auto show coverage, see SHOW <GO>.)

Jan. 9 (Bloomberg) -- Hyundai Motor Co., South Korea’s largest automaker, says gains in vehicle quality assessments and brand perception trump sales volume goals this year.

While the Seoul-based company plans to boost deliveries of Sonata and Elantra sedans for a fourth consecutive year, John Krafcik, its U.S. sales chief, isn’t yet announcing a volume goal for the year. Hyundai grew 20 percent to a record 645,691 in the U.S. in 2011.

“Any number I might provide today, the only thing I know for sure is it’s going to be outdated,” Krafcik said in a Jan. 5 phone interview. “It’s not going to be the number we end up targeting in three or six months. We want to focus on improving our quality and our brand reputation in 2012. That is the priority.”

Hyundai has won sales from competitors such as Toyota Motor Corp. and Honda Motor Co. on the strength of new designs and improved fuel economy. The company’s market share grew to 5.1 percent last year, from 3 percent in 2008.

U.S. sales this year for Hyundai should exceed 700,000 units, and rise more than 8 percent compared with 2011, said Dave Cutting, an analyst with forecaster LMC Automotive in Troy, Michigan.

“It will be growing, but leveling off due to increased competition from other manufacturers,” Cutting said. Industry U.S. sales of new light vehicles should rise 7.8 percent to 13.8 million units in 2012, according to LMC.

Supply Constraint

Krafcik declined to say if reaching the 700,000-unit mark was a goal. “It’s unclear at this time whether we can do that,” he said.

Gains will come from the redesigned Azera large sedan that goes on sale as early as this month and a full year of Veloster three-door coupe sales, Krafcik said. A modified version of the Genesis Coupe and turbo-engine Veloster being shown later today at the North American International Auto Show in Detroit will also generate “a small amount” of incremental sales, he said.

Total sales will continue to be constrained by capacity to supply midsize Sonata and compact Elantra cars, Hyundai’s U.S. best sellers, Krafcik said.

“The demand side signals there’s upside, but from the production availability side, we’re doing what we can with what we’ve got,” he said.

Last year, the company’s Montgomery, Alabama, plant that builds those models, produced a record 338,000 vehicles, more than 10 percent above the factory’s official capacity.

Quality Deadline

“I don’t know that that order of improvement is possible in 2012, but we’ll see,” Krafcik said. “Maybe we’ll find some way to eke out a little more.”

Krafcik, echoing comments from Hyundai Motor Vice Chairman Chung Eui Sun in November at the Los Angeles Auto Show, said there’s no plan to boost North American production capacity at this time.

Instead, Hyundai is under pressure to rank this year among the top brands in U.S. vehicle quality assessments, including those by J.D. Power & Associates.

Hyundai Motor’s top management in South Korea set a goal in 2009 of becoming one of the industry’s top three brands in “actual” quality, as determined by outside surveys, by this year, and one of the world’s top five brands in “perceived” quality by consumers, by 2014.

“Internally, we are tracking very, very well, but we are taking nothing for granted,” Krafcik said.

J.D. Power Survey

Hyundai fell to 11th place in J.D. Power’s most recent survey of new vehicle quality, released June 23, just below the industry average, from seventh place in 2010. Its affiliate, Kia Motors Corp., rose to 19th place from 26th place in 2010.

“We are doing everything we possibly can to get there,” Krafcik said. “I would imagine there would definitely be unhappiness if it is not achieved.”

Quality and styling gains made in the past decade have helped Hyundai increase transaction prices and allowed it to enter luxury vehicle market with its Genesis and Equus sedans that vie with pricier models from Toyota’s Lexus and Daimler AG’s Mercedes-Benz.

Hyundai last year sold 3,193 units of the Equus, starting at $58,750, topping its annual target of about 2,000. Combined sales of Genesis sedans, starting at $34,200, and Genesis coupes, grew 13 percent to 32,998.

With Equus, Hyundai estimates it has a 5.7 percent share of the market for large luxury sedans, better than its total U.S. share. The company had sales of more than 36,000 premium vehicles last year and “we’re now a player in the luxury segment,” Krafcik said.

Quality and styling enhancements are driving the company’s U.S. gains, said Rebecca Lindland, a Norwalk, Connecticut-based analyst for IHS Automotive.

“Everything has changed for them,” Lindland said. “You don’t have to apologize for driving one these days.”

--Editors: Bill Koenig, Chua Kong Ho

To contact the reporter on this story: Alan Ohnsman in Detroit at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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