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A tense Steve Wilhite paced in a cavernous hall at New York's Jacob Javitz Convention Center on the afternoon of Apr. 4, intently rehearsing his presentation. Hyundai Motor America's chief operating officer was about to introduce the South Korean company's upscale Genesis sedan to the media at the New York International Auto Show. He was worrying over his prepared comments about the $30,000 to $35,000 sedan, which he would soon audaciously compare with both the BMW 5 Series and the Lexus ES350.
If Wilhite seemed more pensive than enthusiastic, it was because his briefcase held a binder of consumer data spelling out just how tough it was going to be to sell the Genesis, or in fact the rest of Hyundai's higher-priced models, like the $30,000 Azera sedan and the Veracruz SUV. "We have no brand," said Wilhite, swigging from a bottle of water after 45 minutes of running his lines. "Zip."
Wilhite, 54, was well aware of Hyundai's challenge before taking on the top job at Hyundai Motor America last August. As senior vice-president for global marketing at Nissan in Tokyo and vice-president for marketing at Nissan's North American operation before that, he was used to looking at Hyundai as a competitor. He'd seen its quality improve "to scary levels," he says--and sales stall. It was clear that the company needed a new "big idea" to redefine its brand and move it away from an association with cheap, tin-pot vehicles. Wilhite had reinvigorated brands before, earning marketing-guru status at Volkswagen (VLKAY) in the 1990s when he led the German carmaker's comeback, largely through clever advertising. Then he'd gone on to become Apple (AAPL) Computer Inc.'s top marketer. That Hyundai chose Wilhite to run its entire U.S. operation says volumes about how critical a strong, new brand identity is to Hyundai's future.
The South Korean auto maker is desperate to convince consumers that its cars and SUVs are worth premium prices. Its impatience to see results is understandable. Hyundai's quality is actually ahead of Toyota's in J.D. Power's (MHP) Initial Quality Study, and behind only Lexus and Porsche. Consumer Reports just tapped two of Hyundai's new vehicles as "Most Impressive" among five 2007 models it recently singled out. But only 23% of all new-car buyers last year even bothered to consider a Hyundai. That compares with 65% for Toyota Motor Co. (TM) and more than 50% for Honda Motor Co. (HMC)
Despite an array of new models with quality and styling at levels unimaginable even as recently as five years ago--and more discounts to boot--sales growth has flattened. Hyundai's inventory of unsold vehicles has quickly swelled. The company, which was the fastest-growing carmaker in the U.S. from 2000 to 2005, had a target of selling one million vehicles in North America by 2010. Forget that. The goal has been quietly scaled back to 700,000, with a 2012 benchmark of 900,000 sales. Those targets are still ambitious: Hyundai sold just 455,000 cars in the U.S. last year. Even so, Hyundai Motor Co. CEO Dong Jin Kim recently told the media that in 2007 he expects his COO to sell 100,000 more vehicles than last year.
THE YUGO FACTOR
The urgency of Hyundai's problem can be seen in the football-field-size parking lots behind its two-year-old, $1 billion plant in Montgomery, Ala. Sonatas are piling up as the factory turns out the sedans about twice as fast as dealers order them. Chrysler (DCX) was harpooned by Wall Street last year for building cars and SUVs without buyers, but Hyundai's "sales bank" has gone largely unnoticed. Sonata sales fell 30% in the first quarter, and sales of the Tucson crossover and brand-new Entourage minivan have been disappointing, too. Last year, the Korean automaker's earnings fell 34%, to $1.6 billion, and its operating profit margin was halved, to 4.5% from a heady 9% three years ago.
The bottom line: Hyundai needs a new story. "When we don't have a price story, we have no story," says David L. Zuchowski, Hyundai's vice-president for sales. And the price story is under pressure. The Korean won has appreciated nearly 25% against the dollar over the past three years. Wilhite is worried that the trend will make it tough to keep offering more standard equipment than competitors do while boasting sticker prices about 6% to 10% lower than those of rivals. Hyundai saw a double-digit decline in exports to the U.S. and Europe in 2006 because of a narrowing price gap with more highly regarded brands. "It's still seen as an entry-level car and brand, and we've got $30,000-plus vehicles arriving," says Patrick Terhaar, a Minnesota dealer with three Hyundai stores and plans for two more. Terhaar calls Hyundai's image problem "the Yugo factor." Hyundai entered the U.S. market in the late 1980s at about the same time as the much-joked-about Yugoslavian cars and went on to have quality problems that almost sank the brand.
Wilhite is focused on repositioning Hyundai as an overachieving, underappreciated brand that smart people are discovering. While briefing the ad agencies bidding for the new Hyundai campaign, he evoked the "Drivers Wanted" ad campaign that Arnold Worldwide created for Volkswagen in the mid-1990s, as well as the classic VW ads from the 1960s, that "made consumers look at a brand through a different lens." Says Scott Goodson, CEO of ad agency Strawberry Frog: "Even when you show a consumer that quality is higher than Toyota, they don't believe you."
Pitches ran from Siltanen & Partners' strategy around the slogan "Smart Move" to Strawberry Frog's somewhat cosmic-sounding theme around the word "defog," meant to play to Hyundai buyers who purchased their cars based on facts, not the fog of fancy imagery. Arnold's ad line was "Here's to More," with the idea of making a hero out of a brand that always gives consumers more features. Kirshenbaum Bond + Partners' line "Why Doesn't Everyone?" asked why every carmaker doesn't offer all the standard features and safety engineering of a Hyundai.
In the end, Wilhite and a committee of managers and dealers opted for San Francisco-based Goodby, Silverstein + Partners. Goodby helped to define Hyundai's problem using research involving 200 people who sized up the new Veracruz crossover. When a group was shown the vehicle without any identifying logos on it, 71% said they'd buy it. Once the Hyundai logo went on, however, that dropped to 52%. In the same research, a Toyota logo lifts intent-to-purchase by more than 20%.
Goodby's campaign, due out by June, is expected to blanket TV, the Internet, and newspapers with data about safety ratings, quality, and value pricing using a tone that agency CEO Jeff Goodby describes as one of "disarming honesty." The idea is to create an environment, he says, where neighbors and co-workers of Hyundai buyers completely understand why they bought a Hyundai. "Hyundai," he notes, "has no social currency today."
Goodby's slogan, "Have a Nice Car," bombed with Wilhite, but the overall strategy resonated. It compared the automaker's difficulty persuading people to trust and admire Hyundai to Galileo's persecution for suggesting the earth rotated around the sun. Says Wilhite: "Like I said, we need a big idea."
By David Kiley