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And there's more: Hyundai's Ix-onic and Blue-Will concept cars point to the Korean manufacturer's future.

Hyundai targets Mazda in Australia as global onslaught lifts market share

9 Jun 2009

A BIGGER marketing spend by Hyundai Motor Co (HMC) in the face of the economic downturn is likely to reward the South Korean car-maker with a larger slice of the global car market, including Australia, where it is now gunning for a top-four position.

Hyundai is not immune from the global recession, which has cut world car sales 17 per cent so far this year, but the company was one of the few to turn a profit in the first quarter as buyers turned to the value brand in tough times.

While its domestic market has crashed, Hyundai sales performances have stood out in export markets such as Australia, North America (up from five per cent, with light vehicle market share to 7.3 per cent), Europe (the only top-10 brand to lift sales this year) and China, where sales increased 69 per cent in what is now the world’s biggest market.

In Australia, Hyundai was also the only top-10 brand to increase sales in the first five months of 2009 and has leapt from eighth place at the end of last year to now be the fifth-best-selling brand in the country.

Its market share here has risen to 6.3 per cent to the end of May, up from 4.3 per cent in the same period last year, with sales defying the downturn by rising 16.4 per cent from 18,970 units to 22,073.

Hyundai has now set its medium-to-long-term ambitions to knocking off Mazda for fourth place in the Australian market.

 center imageLeft: Hyundai's Kevin McCann. Below: Hyundai's i20 and i10.

To do that, it needs to expand its model range into new market segments, according to Hyundai Motor Company Australia (HMCA) sales and marketing director Kevin McCann.

“We’ve been growing globally for a couple of years now on the back of some very good new product and some very good performances in quality surveys around the world,” Mr McCann told GoAuto in an extensive interview.

“But late last year the company decided that, going into a global downturn, as a relatively healthy company from a perspective of profitability, product planning, quality, inventories and so on, it was an opportunity to ramp things up and gain some market share so that, when the market starts to climb again, we’re at a new market share plateau that will give us an exponential increase in volume.

“Every year the chairman issues some new visions (for) the near future, and one of his visions for this year was to improve the way we market we want to be more innovative in our marketing.

“That is a clear message for those in the company responsible for marketing to say, ‘We’ve got some ideas and we need some investment’, so you do see some freeing up in budgets to enable us to install these ideas.”

Although the marketing budget has been increased over the $50 million HMCA spent in 2004 – itself a big increase over the $30 million a year earlier – Mr McCann said it had not bought massive gains at the expense of profit in Australia.

“We were able to spend up-front to a greater degree than we normally would this year, and that has seeded the growth that is now self-funding,” Mr McCann said. “So, if you look at the budget on a per-car basis, the fact that we’re selling more cars is paying for the additional spending that we invested in marketing.

“The budget’s definitely gone up, but I couldn’t comment on the relativity between then (2005) and now because marketing costs themselves have increased a lot in the last couple of years. Plus, because of the slight fragmentation of media, we simply have to spend more money to maintain the level of effectiveness we want.

“The company is still in a profitable position, but it’s not making the same profits it was a year ago. On a global level, HMC reported a profit of around $A200 million for the first quarter, which was down from about $A400m in the first quarter last year.

“As a private company, we (HMCA) don’t report our profitability, except in an annual report to the Australian Securities Commission, but on first-quarter basis I can tell you that we traded positively in Australia.

“Last year, at the end of the first quarter we were profitable, but we made all our profit in the first quarter – we didn’t make much for the rest of the year because the market declined and we had some supply issues as well, which we haven’t got to contend with this year.”

Mr McCann denied reports that head office had increased its market share by placing unrealistic targets on its overseas subsidiaries. He said the general strategic view for Australia was for a five per cent market share. After claiming about 4.5 per cent last year and then agreeing a new production plan with Korea, the target was set at 5.5 per cent for this year.

“In the first quarter we were able to get that up to six per cent and now it’s generally understood that six per cent is the market share we are required to continue to get,” Mr McCann said. “It hasn’t been as a consequence of any pressure it’s just been a consequence of setting a target that was slightly higher than what was required as part of our business plan, performing even a little better and having that become the norm.”

Mr McCann is a respected 30-year local industry veteran who joined HMCA from VW China in April 2007 – three years after then-CEO Bong Gou Lee revealed some extraordinary projections for the brand soon after the factory took control of the Australian operation.

At that time, having just recorded 40,000 sales, Mr Lee told GoAuto in an exclusive interview that Hyundai would reach 60,000 by 2007 and 80,000 by 2010.

Mr McCann distances himself from those projections, noting that he was given a target of 50,000 when he arrived in 2007 and his team worked hard up to New Year’s Eve to make that figure by just seven vehicles.

“But, to get that number, we had subjected ourselves to a fair bit of pull-forward,” he noted, saying it resulted in a slow start to 2008. He consequently fell 4600 short of last year’s unchanged 50,000 target, but is well on the way to reaching that figure this year, despite the overall market decline.

“The way I’ve always worked is that everything starts with product and where you are in the lifecycle of your various product lines. Based on that lifecycle analysis, this year (we’ll get) probably five to six per cent growth versus last year, and next year, because we have some interesting new models coming that are big-volume lines for us, we will probably see that growth increasing slightly.

“We’re still seeing relatively flat conditions for the market for the next couple of years.

“Once you unwind the automotive industry in terms of the production planning, it takes quite a long time to ramp it back up again because you’re changing supply agreements and logistics agreements and so on. Once you slow it down, you can’t just turn it back up because you want to.

“So, while demand might be healthier next year, the balance of supply and demand means we’ll have a fairly flat market, but I think we’ll continue to have market share growth for Hyundai because we’ve got three significant new model changes coming next year.

“We’ll be adding new models into the light segment, where we are currently with Getz, we’ll be adding a new model into the compact SUV segment and also one into the medium sedan segment.

“We’ve moved to number five in the marketplace and we don’t have as many products in our line-up as the company that is number four, but we do want to be number four one day. We just have to work out the best way to get there.

“We have some product lines that are not performing to their full potential now, so we need to get on top of those as well.

“(Number four) is the next great leap forward, (but) it’s not something that we’re saying we’re going to do this year or next year.”

Mr McCann was reluctant to discuss future model plans, but said business cases were being formulated for both i20 light car and the sub-light i10, both of which are made in India.

He said discussions were continuing with head office and that, while the chances for both coming here were “strong”, the i20 may not make it by the third quarter this year as expected. It will be priced above Getz, which will continue to be sold as a low-cost alternative alongside the similar-sized newcomer. The i10 is still scheduled for a 2010 release.

Hyundai’s aging mid-size Sonata, which fell 48.2 per cent last year, will be replaced next year and may be significantly re-branded to compete with highly regarded Japanese rivals like the Mazda6 and Honda Accord Euro.

Mr McCann told us that HMCA was considering a new name for the car – understood to be i40 – although it will continue to be called Sonata in some parts of the world. The car should borrow cues from the 2006 Genus concept.

The forthcoming small SUV was previewed with the Ix-onic concept at the Geneva motor show in March.

Furthermore, a Blue-Will concept shown in Seoul a month later demonstrated Hyundai’s latest work in developing a plug-in hybrid that will rival Toyota’s Prius. The flame-surfaced Blue-Will was also a pointer to the small-car design direction the South Korean marque has taken.

The outstanding performer for HMCA this year has been the i30 small car, with improved availability from Korea lifting sales by an extraordinary 68.7 per cent to 7162 units to the end of May, second only to the enduring Getz price-leader with 7263 sales and closing rapidly.

Other ‘i’ models have also done well for the brand in Australia – the iLoad, its first commercial vehicle, is up 27.7 per cent to 951 units this year, while the iMax compact people-mover is up 34.7 per cent to 322 – so there is great anticipation over the likely arrival of both the baby i10 and i20 light car next year.

The i30 has been responsible for a worldwide lift in Hyundai’s image since it was launched in 2007, in terms of both style and engineering, and Mr McCann believes the brand value is rapidly approaching that of global number one Toyota.

However, he acknowledges that Hyundai models still need to offer more value in terms of extra equipment and features over their Japanese rivals.

“We’ve positioned them (the ‘i’ models) to be competitive and attractive, the customers have accepted that and paid the prices we’ve asked, and the media have positively judged them as well – you combine all of those things and we think that gives us a great platform to take our brand to the next level,” he said.

“We still need to be slightly more competitive than the leading Japanese brands, offering more value. We need to say our car is better value because it has more of this or that, especially when it comes to equipment.

“One of the reasons we have to do that is because we need to break down people’s loyalty to other brands. These new products have to be responsible for introducing customers to the Hyundai brand.

“A car like the i30, for example, has taken us into a whole new world, both with private customers and also, interestingly, with major corporate customers. We’re winning new corporate customers every day – big companies that have never dealt with us before.”

But is Hyundai running the risk of having a split personality, selling cheap cars like Getz – which still accounts for one-third of all local Hyundai sales – while at the same time trying to raise its image with more advanced new models?“That’s a discussion that we often have internally, but I think we’ve come to the view that we’re a volume car company we’re not seeking to become a prestige car company,” said Mr McCann.

“We want to be recognised for delivering great products at good value and our aim is to sell as many of them as we can, and consequently we have a very broad model range, especially passenger cars.

“Therefore, being both volume and broad, we believe that our brand has got to be able to carry a wide range of cars in price terms, and the type of marketing we do for each of those model lines is determined by where that car is at in its lifecycle. Any car brand, regardless of where it’s positioned in the prestige hierarchy, is doing that.

“There’s definitely a very attractive range of product available that Hyundai produces globally. We don’t get to take all of them in this market – and right now we probably wouldn’t want some of them because they’re simply not right for the brand at this time – but it’s definitely a strategic aspiration that we would be able to look at some of those cars in the future.

“Two years ago, the idea of a $50,000 or $60,000 Hyundai might have been a little bit out of reach, but after the dust settles on the recent growth we’ve had it’s probably going to be possible to consider that.”

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