Course correction for Genesis' 'misguided missile'

Is Genesis a make or a "model?"

The question is at the heart of the lingering confusion surrounding Genesis' retail strategy. And the answer is critical in determining how Hyundai's fledgling luxury operation will distribute its vehicles.

Trouble is, the answer varies by state, and it's further complicated by the convoluted history of Genesis, which started as a top-end luxury nameplate in the Hyundai stable, then became a subbrand for Hyundai's luxury products and eventually the foundation for a proposed new retail network.

That history came back to haunt Genesis executives last week, forcing them to backpedal on the plan announced in January to launch a network of about 100 stand-alone stores in 48 U.S. markets and cut loose hundreds of Hyundai dealerships that now sell Genesis products.

As retailers decried the move to cut them out, state agencies and dealer groups around the country began scrutinizing the relationship between Hyundai and Genesis, specifically whether the G80 and G90 sedans, now sold by Hyundai dealers, are considered part of the Hyundai brand or nameplates of a separate Genesis marque.

If the G80 and G90 are part of Hyundai, Genesis would have a tough time denying Hyundai dealers the right to sell Genesis products under some state laws. But if they are part of a separate Genesis brand, the marque would be required to get a license to distribute them.

Genesis is navigating that conflict state by state. General Manager Erwin Raphael sent a message to dealers last week informing them that Genesis vehicles would be "distributed exclusively by Genesis Motor America LLC" as a separate franchiser nationwide and all Hyundai dealers would be offered a Genesis franchise agreement. Raphael noted that the brand's state-by-state efforts to apply for proper licensing are ongoing.

Getting Genesis licensed as a separate brand would clear roadblocks in states such as Texas, which regards Genesis as "a model within the Hyundai Motor America product and not a separate line-make." In a Feb. 28 letter, the state's Department of Motor Vehicles informed Hyundai Motor America that offering Genesis only to certain dealerships was a violation of the state's franchise laws.

By seeking new licenses and offering the franchise widely, "Hyundai appears to be making a business decision which complies with Texas law," the agency told Automotive News.

Under the new plan, the roughly 350 elite-level dealerships that carried the G80 and G90 can continue to sell those products, or take settlement money that had been offered. Those who become or remain Genesis dealers will be required to sign new or separate franchise agreements, though some state laws may complicate this effort.

Genesis' launch problems have been bubbling for a while. Last summer in Louisiana, it had to suspend vehicle sales after being notified that it wasn't properly licensed to distribute vehicles under the Genesis marque. Genesis is now licensed in the state, but hasn't resumed vehicle sales there.

Several weeks ago, Genesis proposed a pilot project in Louisiana in which all Hyundai dealers would have the chance to apply for the brand. Then the company ended up making the offer nationwide soon after, said Claude Reynaud, who represents eight Hyundai dealers in Louisiana and is general counsel for the Louisiana Automobile Dealers Association.

"There was a lot of pressure put on them in Louisiana and other states," Reynaud said.

Reynaud described the brand's previous launch plan as a "misguided missile." Looking ahead, Reynaud said he's optimistic about Genesis' decision to open the brand to all Hyundai dealers, but added that he's waiting to see what terms his clients receive for Genesis points.

The California New Car Dealers Association had also protested the Genesis rollout, citing potential clashes with franchise laws. Brian Maas, the association's president, thinks Hyundai and Genesis executives didn't realize how complicated it would be to spin off Genesis while dealing with franchise rules that varied by state.

"The fact that they made this change is a positive development," Maas said, "and we think directly in response" to pressure from Hyundai dealers and trade groups.

Genesis executives declined to comment for this article.