By 2022, Hyundai's Genesis brand should be sitting pretty, executives say, with a fully developed independent dealer network, a portfolio of at least six vehicles split among sedans, coupes and crossovers and annual U.S. sales of about 100,000.
That's nearly two decades after Hyundai started bandying about the idea of adding luxury vehicles to its value-priced product line and selling them through a separate retail channel.
The time in between will have been a bumpy, tortuous ride for Hyundai dealers, thanks to a strategy they have called indecisive at best and maddeningly muddled at worst and despite well-received products that can reasonably claim to compete with the German and Japanese giants.
Last year, Genesis leaders jolted the Hyundai network by announcing a retail strategy that would cut loose the vast majority of Hyundai dealers and demand separate buildings to handle all operations for the luxury line. The about-face has angered dealers who spent years methodically building up the once-paradoxical notion of Korean luxury vehicles, only to find themselves out in the cold now, while also keeping the brand in limbo as it prepares to launch a critical vehicle.
Yet as recently as 2016, then-Hyundai Motor America CEO Dave Zuchowski said the "complete reliance on facilities to define luxury is changing." In other words: Genesis didn't need separate stores to distinguish itself.
"The executives in America, I don't think they were clear on direction," said Scott Fink, who has two Hyundai stores in the Tampa, Fla., area and is one of 350 dealers eligible to sell the Genesis G90 sedan.
"Leadership, all the way back to Seoul, has been leaving their options open," he said. "It's not like I remember 10 to 12 years ago, them saying, 'Hey, by such and such a time, here's the plan.' It was never defined like that. It was fluid."
Who gets the G70?
Even now, following the most clearly articulated plan yet for the structure of a distinct Genesis network and an announced product timetable, a big mystery remains: When the long-awaited G70 sports sedan — Genesis' purported BMW 3-series fighter — arrives in the U.S., who will sell it?
The car, offered with a manual transmission option for driving purists, made its U.S. debut at the New York auto show and is scheduled to launch this quarter, says Manfred Fitzgerald, the brand's global chief. But if the dealer body isn't selected soon, he says, it's unclear how the company will allocate the G70.
"That's a good question," Fitzgerald said. "We're taking it step by step, day by day, state by state."
The "fluid" retail strategy has been the story of Genesis from the opening chapter.
When Fink became a Hyundai dealer in 2003 and joined the dealer council, there were rumblings that the automaker could one day form a separate retail channel for luxury vehicles. At the time, Hyundai Motor Co. was testing the luxury waters in Korea with the Equus, an executive sedan with a distinctive emblem. The idea of a Hyundai entry to take on the best European and Japanese vehicles in the U.S., and erase preconceptions of what Hyundai could deliver, would be a few years away.
That distinction would go to the Hyundai Genesis sedan, which reached the U.S. in the middle of 2008 as a purported challenger to the BMW 5 series and Mercedes E class.
Ahead of the launch, Hyundai executives debated the best retail model for their new luxury product, ultimately settling on pushing it through the existing Hyundai network, where it could serve as a halo for a brand that had made big strides in quality and content but not cachet.
Andrew DiFeo, the current chairman of Hyundai's dealer council, said the company's position was that it wanted to see how the market responded to the Genesis and keep its options open.
"We got lucky" with that decision, John Krafcik recalled in a 2010 article written for Edmunds about Hyundai's foray into luxury. Krafcik was a product executive at Hyundai Motor America when the Genesis was introduced, and became CEO in November 2008. The Genesis launched just as the 2008 financial crisis was about to hit, and the decision spared dealers the expense of building new or improved showrooms in the lead-up to a punishing recession.
Gregory Mauro, owner of Gregory Hyundai in Highland Park, Ill., which sells Genesis models, says he recalls Hyundai raising the possibility of a separate luxury brand when the Genesis sedan hit U.S. stores.
"That timing would be terrible for dealers to have to invest in brick and mortar," Mauro said.
A nickname
The decision was further validated by strong sales of the Genesis sedan and its coupe variant, along with Hyundai's soaring growth in the fragile recovery years, when gaudy luxury brands fell out of favor. And it paved the way for an even bolder move up the luxury ladder for Hyundai — the introduction of the next-generation Equus sedan in the U.S.
Dustin Walters, vice president of Friendship Automotive in Bristol, Tenn., remembers how Hyundai's luxury line would swipe consumers from established upscale brands. He says the Genesis, bolstered by North American Car of the Year honors in 2009, turned out to be a "phenomenal" product that exceeded expectations early on.
"Dealers were excited," Walters recalled. "Ten years down the road, will that be the next Lexus or Mercedes? That's what dealers were getting excited about: the potential of what the brand could be."
During the Equus' U.S. launch in late 2010, executives again reasoned that having dealers build costly temples to sell the upscale models would be too expensive for low-volume products, though they were concerned about putting luxury cruisers that topped $50,000 alongside economy models such as the Elantra and Accent.
The compromise was to have dealers who wished to sell the Equus invest in separate showrooms within their Hyundai stores, using special signs and displays to showcase the long-body sedan; about 350 of Hyundai's roughly 840 dealers now fall under that agreement. Hyundai centered its luxury efforts on having dealers provide refined customer experiences highlighted by valet services. The thinking at the time was that Hyundai could attract new customers while retaining existing ones.
"Many of these old-school luxury-brand dealerships were built just a few years ago, and many of them cost their owners $25 million to $75 million to construct," Krafcik wrote on the cusp of the Equus launch, pooh-poohing the marble floors and cappuccino machines found in competing luxury dealerships. "We have a nickname for facilities like these in our industry: mausoleums."
One for the kids
Fink recalls the shared-showroom model working for him in those days. He enjoyed the clientele that the Genesis and Equus attracted. These luxury buyers, he recalled, would sometimes pick up a Genesis for themselves and a lesser Hyundai model for one of their children.
The formula worked well enough that for years, Hyundai fought off speculation that it would create a separate luxury brand.
In 2011, Hyundai denied to Automotive News that it would create another brand for the Equus and Genesis. A Hyundai Motor Co. spokesman said at the time that it wouldn't be able to raise the Hyundai brand's cachet if it "cut off our top level."
In 2012, Hyundai executives said they were tossing around the idea of selling the Genesis, Genesis Coupe and Equus under a luxury subbrand through Hyundai's existing network. The potential subbrand's name? Genesis.
Hyundai quashed that idea — in public, at least — soon after.
In 2013, Hyundai told Automotive News it was hiring field managers to oversee sales, marketing and retail strategies for three premium vehicles, but Krafcik said then that shouldn't be viewed as a step toward launching a luxury brand.
"We don't want isolated islands of retail excellence, like Lexus," Krafcik said at the time.
By 2014, Hyundai still was preaching the benefits of having luxury products alongside mass-market options. Zuchowski, Krafcik's successor, said around 45 percent of Genesis sedan sales came from current Hyundai owners who wanted to graduate to something more upscale. In addition, 55 percent of Genesis sales at the time were conquests.
Now or never
The denials ended in November 2015, when Hyundai announced the formation of Genesis as its global luxury brand, giving Hyundai dealers hope for a chance to tap into a higher-profit sales and service stream. Hyundai's two luxury nameplates would be rebadged under the Genesis brand as the G80 and G90, with more vehicles to come.
By then, Hyundai brass in Korea said the brand had accrued enough equity through positive reviews of the second-generation Genesis. And the Equus was due for a redesign, so there was a now-or-never mentality about pegging the brand launch to it.
The premium-luxury car market was expected to grow, too, with an expected 29 percent surge to 6.77 million vehicles by 2020, according to IHS Markit.
"In certain markets, the vehicles were selling comparably to German or Japanese luxury vehicles. That gave them the confidence," DiFeo said. "And hearing what consumers wanted as far as an expanded lineup, and knowing that to have an expanded lineup, that a separate luxury channel probably made the most sense."
There was a plan at that stage to eventually split off Genesis' retail channel as well, said Fitzgerald, a former Lamborghini executive who was tapped as global brand chief in December 2015. But the "timing was not clear or hashed out in full detail."
The thinking, he said, was that the break would happen "much further down the line," after Genesis had fleshed out the full lineup. But some executives argued that waiting that long would make a split that much more complicated, with dealers more deeply invested in the brand.
In the meantime, Zuchowski was telling Automotive News that Genesis likely would operate under a hybrid model varying by market size. Some Genesis stores would be completely independent, while some would have separate sales facilities but shared service. Others, he said, would continue to share showroom space with Hyundai.
Zuchowski projected that in 2020, with six vehicles in its stable, Genesis would sell 90,000 vehicles a year, up from the 33,706 Genesis and Equus cars combined that Hyundai sold in 2015. With those numbers, dealers in larger markets could justify the formation of stand-alone Genesis showrooms.
Left out
Zuchowski, a longtime hero of the dealer body, was fired in December 2016, and his post remained open for nearly nine months. It was during that span that Genesis leadership delivered a bundle of surprises to Hyundai dealers: Genesis would get its own retail network much sooner than planned. It would be much smaller than they expected — only about 100 stores nationwide. And many dealers who already carried Genesis products would be left out of it.
Feedback from dealers had indicated that a smaller retail network was necessary to maximize profits, Erwin Raphael, general manager of Genesis Motor America, told Automotive News at the time. He also cited data from customer clinics showing that buyers disliked the idea of shopping for a $50,000 or $60,000 luxury vehicle at a Hyundai showroom amid Elantras and Accents, a change in shopper patterns since the frugal 2008-09 period when Hyundai found its footing in luxury.
So Hyundai Motor Co. Vice Chairman Chung Eui-sun decided in the summer of 2017 to create a clean and quick break.
"He understood my arguments about having the separation between these two brands, that that is fundamental and so essential," Fitzgerald said in a March interview in Tokyo.
Hyundai dealers now will close the decade trying to rebalance themselves after years of mixed messaging and unclear directives. They'll gain a new crop of crossovers in popular segments but lose the halo vehicles that brightened their showrooms.
Genesis will have to work through the hard feelings of some dealers as it cuts down from 350 stores selling the G80 and G90. Out of that pool, only those in selected markets will have a chance to apply for the stand-alone locations. Others will get compensation packages to reimburse them for inventory, training and equipment to service the products.
That means the potential success of Genesis down the road — Raphael sees annual U.S. sales of about 100,000 by 2022 — will have to come without many of the dealers who believed in the idea of a Korean luxury marque from the start.
No right model
While there have been predecessors in creating luxury brands, Fitzgerald says there's no clear-cut formula. He doesn't see room for doing the U.S. retail restructuring much differently.
"I don't know what model is the most successful one," Fitzgerald said. "If I look at where we are now as a stand-alone brand in the U.S. after one and a half years, I think we have achieved quite a lot, in terms of recognition."
One Southern U.S. dealer thinks there must be a better way. He invested $100,000 in showroom enhancements and training to qualify to carry the initial Genesis products and was looking forward to selling the brand for years to come, having bought into Hyundai's line that luxury buyers don't care about cappuccino machines and marble floors.
Then Genesis buried his hopes when it said it would split off into the smaller network of around 100 stores, mostly in more urban areas. He doesn't understand how Genesis will compete with the likes of Mercedes-Benz and Lexus when "roughly half" of states won't have a dealership.
He would have preferred for the Genesis sedan, now the G80, to remain in Hyundai's lineup and serve as the flagship for the brand instead of being recast as a model for a separate luxury line. Then, he said, a high-end crossover could have been Hyundai's flagship utility vehicle, solidifying its premium lineup.
In the words of Mike Tyson
Fitzgerald said he expects to complete the dealer selection by the end of the year. Dealers who are awarded franchises will have to build or renovate stores to sell Genesis vehicles only by the end of 2020. The new stores must be operational on Jan. 1, 2021, and can't share anything with any other brand.
Fink believes the deadline will be tough to hit.
"There's a famous quote by Mike Tyson: 'Everybody has a plan until you get punched in the mouth,' " said Fink, a former Hyundai dealer council chairman. "I think it's the same thing here."
The plan is "robust; it's aggressive," Fink said. "Is it feasible? Market by market, state by state, regulations, etc. I think the timeline could be a challenge."
A dealer in the Nashville area says he believes Genesis is demanding too much too soon, especially when the brand hasn't truly taken off. He says it's "Las Vegas gambling" to throw $10 million at a new Genesis store right now. He thinks a 2023 target would've been more reasonable.
Genesis' utility vehicle timetable is still on track despite the U.S. dealer shuffle. Its first crossover, the GV80, is coming at the end of 2019 or in early 2020. That will be followed by the smaller GV70 a few months later.
The Nashville dealer says Genesis has the product needed to succeed. The inconsistencies in strategy over the years, however, have concerned him.
"They can redeem themselves," the dealer said, but "They need to do something quick, or they're going to screw this up."
Fitzgerald says the restructuring of the U.S. dealer network is a work in progress and U.S. franchise laws are more complicated than expected. The brand ran into a rocky situation in Louisiana last year, when Genesis had to abruptly stop selling because of licensing issues.
"Everybody knew this wasn't going to be an easy process," he said. "Everybody knew that from the get-go. How complicated it can get, and how hairy it can get, maybe not so."