HYUNDAI: Dealers hope crossover push isn't too late

Andrew DiFeo says Hyundai Motor America's problems stem from one thing: overproduction of the wrong kinds of vehicles.

The company flooded the U.S. with cars as demand was waning, which forced it to dispose of vehicles through fleet sales in recent years.

But DiFeo says Hyundai's lineup is starting to match consumer demand. 2018 will be a critical year.

The Kona, the brand's first subcompact crossover, is due for a spring arrival. The peppy, reworked Veloster hatchback is expected to arrive in the second quarter. And the redesigned Santa Fe, the brand's top-selling light truck, is coming this year as well.

To rebalance its car-heavy portfolio, Hyundai plans to introduce eight new or redesigned crossovers to the U.S. by 2020.

DiFeo, 42, chairman of the Hyundai National Dealer Council, shared his outlook for the brand with Staff Reporter Vince Bond Jr. He also discussed the development of Genesis' stand-alone retail network, executive turnover and Hyundai's big-ticket NFL sponsorship.

Q: How does Hyundai's lineup shape up for this year? Are dealers pleased with the upcoming products?

A: Hyundai has been a car company in an SUV world for quite some time now. While they are great cars, the consumer demand has been for SUVs. We are just starting to see the product pipeline get a little bit closer to parity with what consumers are demanding. That starts with the Kona, which should be on dealership lots in late February, early March. And then we're going to have a redesigned Santa Fe Sport, which becomes a Santa Fe. We've already seen pictures of it and it looks fantastic.

Also for 2018, we do have a redesigned Veloster, which is in a small segment but resonates well with millennials. We'll also see the first-edition Hyundai with the N performance brand, and that will be the Veloster coming out this fall. It looks great, and the performance of it on paper looks fantastic.

With the N performance brand, it also signifies entrance of Hyundai back into motorsports in the United States. We'll be competing in some of those events, which will expose Hyundai to a different group of consumers and show what Hyundai can do performancewise with their vehicles.

At the end of 2018, we've also got some refreshed models of two of our highest-volume models: the Tucson and Elantra.

For 2018, the product pipeline looks much better than it has in the past. We're finally getting into the smaller CUV segment, which we wanted to be in for quite some time now. That leads to 2019, when we've got our eight-passenger CUV coming in the second quarter as well as some other unannounced vehicles for 2019 that really fill out Hyundai's lineup, which almost get us to parity other than pickup trucks.

We hope, as dealers, that we aren't late with the these products. We know they're going to be great products. A lot of manufacturers have a significant head start on us in these segments.

Is there anything about the Kona that will help it stand out in a crowded segment?

The name itself is exciting. There was a pre-Super Bowl spot. We've already had consumers inquiring on our website about the Kona. We're optimistic that is just the start. The actual vehicle launch won't occur until a March-April time frame when there is more supply on dealer lots.

As far as what differentiates it, just having the latest and greatest of all the technology and safety features. Things like wireless device charging. Apple CarPlay and Android Auto — which all manufacturers are starting to put in their vehicles, but not all of them have them — Hyundai was one of the first ones with those in their product lineup. Then, of course, Hyundai Blue Link, the connected car service. That's a key part in showing the value of our vehicles.

Will the Kona be a hot-seller right away, or will it gain popularity over time?

I think we'll definitely see loyal Hyundai consumers trading in their Elantras and maybe Sonatas on it. We might even get some people stepping down in size from Tucson to Kona as they get older and need less space. Perhaps empty nesters. The people who have shown interest are not current Hyundai owners. Once we have a good enough supply of the right models on the lot as well as some launch advertising behind it, it's critical that there be some good Tier 1 mass media presence to launch this vehicle instead of just launching it digitally.

Have some calls about the Kona resulted from the Super Bowl pregame commercial?

Yes. Monday and Tuesday [after the game], we were getting calls and leads on our website inquiring about it.

Does the company have clear direction from the leadership in Korea?

We don't interact with Korea as much as we do with the executives here in the United States. The direction is still a little bit foggy, but it's getting clearer. With the departure of Dave Zuchowski a year and a half ago, that definitely raised some eyebrows in the dealer body as to why that happened. What we felt as dealers was Dave was a very effective executive. And then we had a transition to an interim CEO and an interim VP of sales with Jerry Flannery and Sam Brnovich. We supported them because they've been with Hyundai so long. They know the ins and outs of Hyundai Motor America as well as Sam's experience with Hyundai finance.

It's not our company, so we don't make these decisions. They chose not to put those people in as full time in those positions.

We are optimistic that Kenny Lee, our new CEO, and Brian Smith, our new COO, can get the ship in the right direction. We would like to see a little more interaction and strategic direction from Korea in the United States. This is such a critical market for them globally. Perhaps now having a Korean CEO in Kenny Lee, we will have more interaction from the corporate office across the way.

What is Hyundai dealers' biggest challenge?

First and foremost, the No. 1 priority from us as a dealer council and dealer body is focusing on dealer profitability. Dealer profitability has struggled over the last several years from our highs in 2011 and 2012. We have stabilized, so the strong decrease has stopped, but we're still not seeing that upward tick that we need as a dealer body so we can be profitable, so we can invest in our facilities, attract and retain the best people and train those people.

That's a big challenge that faces Hyundai dealers. It can pretty much all go back to one thing: the decision to build too many of the wrong types of vehicles in the United States market. The powers that be had a product plan that was to build cars and build a lot of those cars. To dispose of them, the retail market couldn't absorb them in the United States, so they had to look at other outlets. That other outlet was fleet.

Over the past couple of years, they've heavily depended on fleet sales to dispose of this overproduction of these wrong vehicles. I think pretty much every problem that we have in Hyundai Motor America/Hyundai Motor Finance can be tied back to the overproduction of wrong vehicles for the U.S. market.

Hyundai leadership in Korea is going to give more power to regions, so the U.S. operation will be able to make more decisions based on what it sees in this country. Will that help with overproduction?

Not just overproduction, but just decisions in general made around the brand. It is my understanding that Kenny Lee now has oversight of the plant in Montgomery, Ala. We hope that he has oversight over the other Hyundai subsidiaries in the U.S., most importantly, Hyundai Motor Finance.

The U.S. CEO having oversight of plants is new?

That's correct. That's something we've been asking for as a dealer council for several years now. The most successful car companies in the United States that are imports are ones that operate at an enterprise level, that have a group of people or holding company that oversees all of the operations in the United States instead of individualized businesses reporting back to the parent company overseas separately.

Is Hyundai's aggressive push to roll out electrified vehicles a good move?

It all boils down to the affordability of these vehicles with relation to the price of gas. The price of gas is relatively low. It is creeping up a little bit, but it seems that the pain point to shift consumer behavior is about $3.50 to $4.

The economies of scale of these alternative-fuel vehicles is getting significantly better. My personal opinion is between 2025 and 2030, we'll see significantly more alternative-fuel vehicles on the road. I can say by 2030, it could definitely be into 15 percent or more market share for alternative-fuel vehicles where I think it's 4 or 5 percent right now.

That number will continue to increase over time. As the technology improves and becomes more affordable, it just makes sense: less dependence on foreign oil, or even oil in the United States, better for the environment. The performance of them is quite good. I know a friend of mine owns an Ioniq electric and is in love with the car. We know we're getting the Kona electric here within the next year.

Hyundai also has the Nexo CUV, which we won't see in Florida, to show off their technology with fuel cells. While alternative vehicles aren't hot sellers today, all companies need to be researching this because it's going to be the future of powertrains. As long as the costs are where they are today, it doesn't make sense in the mass market, but it will over time.

Has Hyundai handled the Genesis rollout well?

It's not the most optimal way to launch a luxury brand.

Given the situation, I think they're getting close to doing it as fair as they possibly could have done. Does it work for all 840 dealers/350 Genesis dealers? No. We think the dealer council and the OEM have gotten to the point that we've come to the most agreeable situation for the majority of the dealers. There will be cases where there will be disagreements with how it was separated, but the only way to have changed this is if the Hyundai Genesis didn't exist in 2009.

We are fortunate that we as a Hyundai dealer network have the opportunity to be Genesis dealers, and they're not going outside the network to other luxury dealers to be Genesis dealers, so we've got the first shot at it. It's just tough getting there, but once we get there, the product itself is absolutely phenomenal.

We're just getting started. We're in two of the smallest segments right now in the luxury space with G90 and G80. G70 is right around the corner. Then we get our CUVs and a sports car.

If the product in the future is anything like the product we have today — you see all the awards that the G80 and G90 are winning, and the sales performance and how we stack up against luxury competitors that have been in business for decades — I'm very optimistic that the brand can be a success. Getting there is a little bit painful, but they've handled it the best they could have.

Did dealers have enough input during the rollout?

In certain parts of the timeline, yes we did. Also, sometimes we were on the sidelines because it was sensitive information and it wasn't 100 percent official information. Sometimes, if that information is disseminated to the public, that can hurt the brand, and what they're trying to accomplish.

Toward the end, we had a lot of discussions about how the separation was going to take place, and how the dealers were going to be compensated.

Was it the most optimal way to do this, and the most optimal way of communication between us and the manufacturer? No. Given the situation, it's the best we could've asked for.

Regarding the compensation, did the council have direct input on that, or did Genesis come to the council and say, "We're going to do this"?

It was a little bit of both. We stressed the importance that there needs to be compensation and the compensation can't just be for buying back cars and parts.

There is a loss of a value in that dealer's business personally and professionally, and the numbers they're coming up with have to be commensurate with that. We never said, "It needs to be this dollar amount." But we said the calculation needs to factor in all of these things, and I think they got pretty close to that.

Has the NFL sponsorship paid off? What have dealers done to take advantage of that sponsorship?

From a macro level, it was nice to be associated with such a big-name brand.

But what we got for it as dealers in terms of share of voice was not satisfactory.

We felt that money could've been spent better elsewhere.

If it included the sponsorship and media weight, then perhaps it's a different story. We feel the media weight wasn't there along with the sponsorship of the NFL. The NFL sponsorship just got the logo attached to the NFL. It didn't buy them any commercials. We were looking for more Tier 1 commercial support.