Hyundai Counts on Strength of Car Design to Sustain Sales Gains

Dec. 18 (Bloomberg) -- Hyundai Motor Co. broke into the U.S. market in 1986 with a $4,995 compact car, the Excel. Now the automaker wants customers to buy its models for their looks.

After boosting its U.S. market share to a record this year, Hyundai aims to build on the gains with more stylish designs. The new focus on looks, kicking off with the 2011 Sonata sedan and revamped Tucson crossover, is also aimed at helping South Korea’s biggest carmaker command prices on par with larger Toyota Motor Corp. and Honda Motor Co.

“The basic idea is a car that looks like a premium car, but not at a premium price,” Phil Zak, Hyundai’s head of U.S. design, said in an interview. “We’re looking to pull people out of Camrys and Accords and give them something different.”

Seoul-based Hyundai has bucked an industrywide slump this year with a 6.2 percent U.S. sales gain through November, as a weaker won enabled the company to boost marketing spending while a stronger yen hurt its Japanese rivals. The Korean carmaker still lags behind Toyota and Honda in terms of brand value, according to analysts.

“The establishment of brand equity and identity that can differentiate it from Japanese makers is a key task ahead for Hyundai,” said Chung Sung Yop, a Seoul-based analyst at Daiwa Securities Group Inc.

Market Share

Hyundai’s U.S. market share this year has risen to 4.3 percent through November from 3 percent in 2008, with the help of marketing programs, enhanced distribution channels and improved quality, said Chung, who rates Hyundai “outperform” with a 12-month share-price forecast of 142,000 won.

That’s still less than one-third of Toyota’s 16.8 percent, the second-biggest U.S. market share after General Motors Co., and Honda’s 11 percent.

To narrow the gap, Hyundai began working on a design concept it calls “fluidic sculpture” three and a half years ago. The theme is to hint at speed and the looks of expensive European models.

The theme was first applied to the Tucson, which debuted in September at the Frankfurt Motor Show. It’s also used for the revamped Sonata that goes on sale in the U.S. in January to compete with Toyota’s Camry and Honda’s Accord.

Longer, Wider, Lower

The new Sonata is longer, wider and lower than the previous version, with extended headlamps and a large chrome grille.

The design strategy is already paying off as Hyundai’s U.S. sales got a lift this year from the Genesis, a competitor to premium sedans including Toyota’s Lexus and Daimler AG’s Mercedes-Benz. Genesis, named 2009 North American Car of the Year at the Detroit auto show in part for its styling, is Hyundai’s first in the U.S. that can sell for more than $40,000.

“If you’re just competing on price and consumers have no emotional connection to the car, they’ll buy the best deal,” said Zak, 44, a designer with GM’s European unit before arriving at Hyundai’s studio in Irvine, California in March.

Hyundai sold 12,141 Genesis sedans in the U.S. this year through November, up from 6,167 at the same time a year ago, following the car’s June 2008 introduction.

The new Sonata alone may boost Hyundai’s U.S. sales as much as 15 percent next year, and total U.S. sales may top 500,000 units in 2010, said Daiwa’s Chung. Stephen Ahn, head of research at LIG Investment & Securities Co. in Seoul, estimates U.S. sales of the model may jump 40 percent from the previous version to 170,000 next year.

“The success of this new Sonata in the U.S. will be the touchstone for whether Hyundai can really transform itself into a leading global automaker,” Ahn said. “Sonata’s sales performance will be a catalyst for Hyundai’s share price.”

Prices

Price is still part of Hyundai’s U.S. appeal. The current Sonata, introduced in 2005, starts at $18,700, compared with $19,395 for a base Camry and $21,055 for the entry-level Accord.

To command higher prices, Hyundai must keep raising quality as well as design, said Alexander Edwards, head of auto research at San Diego-based Strategic Vision Inc., which compiles consumer data based on annual surveys of 180,000 new car buyers.

“They are making the same type of consistent progress that happened with Toyota and Honda,” said Stewart Reed, head of transportation design at Art Center College of Design in Pasadena, California and a former designer for Toyota, GM and Chrysler.

Potential U.S. buyers who say they’d “definitely” consider a Hyundai have tripled from the early part of the decade to 15 percent, Edwards said. That’s still less than the 50 percent who say the same about Toyota and Honda.

Honda, Toyota

“Honda and Toyota lead in consideration because they’re perceived as having reliable, safe vehicles,” Edwards said. “Hyundai is moving, and the fact that it continues to rise while Honda and Toyota are pretty much stuck where they’re at means they need to be concerned.”

In June, J.D. Power & Associates gave Hyundai the highest ranking among non-luxury brands in its initial quality survey, ahead of Honda and Toyota.

“It’s their time to shine,” said Tom Matano, director of industrial design at San Francisco’s Academy of Art University, and Mazda Motor Corp.’s former general manager of design. “When the whole lineup reaches a certain quality level, brand value increases, brand trust goes up, and then volume goes up.”

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net