Hyundai Tries to Get Its Car Sales Back Up to Speed
Nobody ever said car buyers aren’t fickle.
One day, they can be charmed with low costs. The next day, they want bigger cars with well-known names and fancy options.
That at least seems to be the experience of Hyundai. The South Korean car maker became the leading supplier of low-priced cars in the United States just two years after introducing the Excel here in February, 1986. Introduced at a base price of $4,995, the Excel outsold every other subcompact import in the country in 1987 and 1988.
Today, Hyundai has stalled. Sales of the Excel are off 45% so far this year, with 81,835 cars sold, compared to 148,493 in the first half of 1988. When sales of the new mid-size Sonata are taken into account, overall sales for Hyundai Motor America have dropped 33.8% this year.
Preference for Big Cars
Hyundai executives blame a general slowdown in car sales and the tired look of the Excel, which has not been changed in three years. “The good news is that we’re introducing a new Excel in September” and other new models later, said Jack C. Collins, marketing vice president with Hyundai Motor America.
But with a growing consumer preference for bigger, more upscale cars and stiffer competition at the bargain-basement end of the U.S. market, industry experts say Hyundai could have a tough time becoming a full-line company with as many products as Nissan or Toyota.
Hyundai “actually did too good a job of selling the Excel. They saturated the market and there are just too many out there,” said Chris Cedergren, an analyst with J. D. Power & Associates, an Agoura Hills automotive consulting firm.
Since the Excel first rolled into showrooms, Hyundai’s big appeal has been its rock-bottom price. The car maker did a good job of capturing budget-conscious consumers or first-time buyers. Excel became a hit despite two recalls and unfavorable performance reviews.
Many of its buyers, however, have little disposable income, find it difficult to qualify for loans and become big credit risks. Because Hyundai was “very, very aggressive in going after the first-time buyer,” it has been faced with a high number of loan defaults, said Jesse Snyder with Automotive News. That makes loans on Excels more speculative for lenders and investors who purchase the notes from Hyundai dealers.
Hyundai’s Collins acknowledges that some customers have defaulted on loans but claims there is no way to know if Hyundai has had more than its share of bad notes.
But tighter credit isn’t the only reason that Hyundai has lost speed.
Despite rebates and incentives, the auto industry has been in a downturn in five of the first six months of 1989. And subcompacts are dropping in popularity. The small car market is down 14% from a year ago, while the entire market has fallen about 8%, said Jack Kirnan, an analyst with Kidder, Peabody & Co.
The buying public is demanding more luxury in bigger automobiles, said Arvid Jouppi, an analyst in Grosse Pointe, Mich., with Keane Securities Co. “They come in seeking economy and wanting luxury. And the luxury side is winning,” Jouppi said.
Currency Advantage
And even those shopping for a small, economical car have far more choices than ever.
When the Excel was introduced here, Hyundai enjoyed a significant advantage because South Korea’s currency, the won --unlike the Japanese yen--is tied directly to the value of the U.S. dollar. The yen, by the mid-1980s, had risen against the dollar, making Japanese imports much more expensive.
So Japanese car makers three years ago were shipping fewer entry-level cars and were moving into upscale autos. That helped Hyundai in the beginning. Since then, however, the small car market has become intensely competitive, resulting in a base price for an Excel that is not much lower than better-known competitors.
Hyundai, meanwhile, had nothing new to attract customers until the Sonata, a four-door sedan introduced in the United States late last year at a base price of $9,695.
So far, Sonata sales have totaled a 16,455--far below the 40,000 that Hyundai expected to sell. Analysts blame that on Sonata’s slow introduction in the United States and the fact that it is competing against well-established reliables.
To help offset the overall sales slump, Hyundai last year began offering its first dealer incentives on the Excel. That has been followed this year by more incentives and consumer rebates on some Excel models.
Hyundai executives expect sales to get a biggest boost this fall, when the company introduces a redesigned Excel with a more powerful engine, a more modern look and slightly roomier interior. Hyundai also hopes to move further into the more profitable mid-sized car market with a redesigned, more upscale version of the Sonata.
A two-door sporty coupe is planned for early 1990 and a compact sedan that will be positioned between the Excel and the Sonata will be introduced in 1991.
This fall, Hyundai plans to set up a retail and wholesale financing firm that will allow Hyundai to arrange loans for its customers.
“When we began in 1986, our plan was to evolve into a full-line competitor within five years. We’re now in year four and when year five comes, we will have done that,” said Collins.
But some analysts believe that may be wishful thinking.
“I don’t think the South Koreans are ever going to have a major chunk of the market here--it will be between Japan and the Big Three,” said Kirnan, the Kidder Peabody analyst. Hyundai has scaled back its goal of selling 300,000 cars this year to 210,000 to 220,000 cars. Analysts say that projection is overly optimistic. Even so, if Hyundai sells more than 200,000 cars this year, it still will be impressive, considering that it entered the U.S. market only three years ago and sells only two models.
“When the overall market begins to improve, Hyundai will grow again. Maybe not as fast as in 1986 or 1987,” said Cedergren, “but no doubt about it--Hyundai is here to stay.”
SAGGING SALES OF THE HYUNDAI EXCEL 1986*: 168,882 1987: 263,610 1988: 264,282 1989 (Projection): 170,000-180,000 * For period from Feb. 20 to Dec. 31, 1986
