Suddenly gasoline is in the headlines again as attacks on Nigerian oil pipelines and the summer driving season cause energy analysts to predict higher prices at the pump. That could pay dividends for Hyundai. On Tuesday, June 30, the Korean automaker is launching a summer promotion that guarantees buyers of its vehicles one year's worth of gas at $1.49 per gallon.
The gas giveaway comes on top of other offers that have helped Hyundai boost its share of the U.S. auto market from 2.9% to 4.2% so far this year. Earlier this year, Hyundai launched an "Assurance" program that guarantees that buyers can walk away from a new-car loan if they lose their jobs, with no adverse effect on their credit rating. It already offered one of the most generous warranty programs in the industry. Hyundai also bought a series of extremely high-audience TV ad buys, such as the Super Bowl and the first ad spot on CNN after then-President-elect Obama's election night acceptance speech.
Hyundai is trying to increase its market share amid the recession, as Detroit automakers regroup and even Japanese companies are hurting. It is making similar moves in China, where its share rose to 7.3% from 5.3% a year earlier. "Hyundai appears to be using the difficult industry situation as a good opportunity to vault into the league of major players in two or three years," says auto analyst Sokje Lee at brokerage Mirae Asset Securities in Seoul. "Taking advantage of a weak Korean currency, it is spending heavily on marketing."
Gas prices were already expected to rise above $3 a gallon this summer, before the violence in Nigeria that forced Royal Dutch Shell (RDSa) to close its primary oil field on Monday. Crude oil prices for August delivery climbed $2.33 a barrel, to $71.49, on the New York Mercantile Exchange. The Associated Press reported that the average price of a gallon of regular unleaded gas fell by four-tenths of a cent, to $2.639, according to AAA, Wright Express, and the Oil Price Information Service. The U.S. imports almost half of Nigeria's production of light crude, which is the oil used in gasoline refining.
Driving Web site and showroom traffic
"A guarantee of such a low gas price could have a great psychological effect on car buyers, and it certainly will increase hits to Hyundai's Web site and create more interest in researching Hyundai, which is really the point of this promotion," says independent marketing consultant Dennis Keene. "Very few people actually take advantage of these headline-grabbing programs, but [the deals] stimulate Web site and showroom traffic."
Hyundai's Web site traffic is up 18% this year, according to the company. Its U.S. sales are down 7.9% through May of this year, but that's better than the industry's overall 30% drop.
Hyundai's research showed that nearly 40% of potential new-car buyers were staying out of the market specifically because of uncertainty around future gas prices. Chris Perry, director of marketing communications at Hyundai, says: "Our programs are designed to address consumer needs, the ones they are talking about around their kitchen tables." Indeed, while Hyundai's Assurance program increased Web interest when it was launched last January, fewer than 10 buyers have had to take advantage so far, the company says.
Consumers have to buy or lease a new Hyundai by Aug. 31 to take advantage of the discount gas offer. Perry says Hyundai is also running advertising reminding new-vehicle buyers of the Hyundai models that qualify for the Federal government's Cash for Clunkers program, which gives consumers up to $4,500 for trading in old vehicles that get below 18 mpg for new, more fuel-efficient vehicles. "We already are marketing our vehicles that qualify on our Web site, and we will add it to our ads as the government program rolls out."
Hyundai is already benefiting from a bump in attention since it topped Toyota (TM) last week in J.D. Power & Associates Initial Quality Study, which measures problems in the first three months of owning a new vehicle, as reported by buyers. Hyundai was the top-ranked non-luxury brand in the annual study.
the fine print may limit takers
The Korean automaker is not the first to offer discounted gas. Last summer both GM and Chrysler offered big discounts on gas when prices were more than $4 a gallon nationally. Buyers who had to choose between the gas discount and other deals typically opted for the cash or cheap financing rather than discounted gas. And they were smart to do so, because gas prices subsequently plummeted below Chrysler's $2.99 per gallon three-year price lock. Of course, if gas climbs back to $3.50 per gallon in the next 12 months, those buyers will be able to cash in again.
Here is how Hyundai's program will work: After buying a new Hyundai, the buyer registers a Visa, MasterCard, American Express, or Discover credit card, or a Visa or MasterCard check card, at hyundai.pricelock.com. After enrolling, the consumer gets a new Hyundai Assurance branded card to be used for all future fill-ups. The consumer is billed $1.49 per gallon of regular grade gasoline, regardless of the price at the pump, and Hyundai pays the difference. (The driver may elect to purchase mid-grade gasoline for $1.64 per gallon or premium gas for $1.79 per gallon as well, though all eligible Hyundai vehicles are factory-certified for regular fuel.)
The card can be used at any gas station in the Voyager credit -card network, which covers 93% of gas stations nationwide, including brands such as Exxon (XOM), Chevron (CVX), BP (BP), Shell, Texaco, and many more. Consumers are eligible for a maximum number of gallons, equal to 12,000 miles divided by the EPA combined fuel economy rating for the qualifying model.
Hyundai says buyers who opt for the gas discount have to subtract $1,000 from any rebate offered on its individual models. That may mean many buyers will pass on the gas discount. Why? The Elantra Touring model, for example, has a $1,500 rebate now. If gas prices average $3 per gallon in the next 12 months, the savings to a buyer would be about $720, based on the vehicle's 26 mpg rating. So buyers would be better off talking the full rebate unless they fear gas prices will again climb above $4 a gallon.
Read more about Pricelock's role in the Hyundai deal.