Hyundai Considers Making Luxury Car in China to Lower Prices

  • Genesis brand will be introduced at this month's Detroit show
  • China production needed to overcome taxes on imported cars

Hyundai Motor Co. is weighing plans to build its new luxury Genesis cars in China to overcome import tariffs that add 25 percent to the sticker price and are seen as inhibiting the company’s ability to compete with locally made BMWs and Audis.

South Korea’s biggest automaker still needs to reach an agreement with a local partner, said Cho Won Hong, Hyundai’s chief marketing officer. BAIC Group currently makes the Sonata and Elantra in a joint venture with Hyundai, though Cho wouldn’t say whether the two sides were discussing Genesis production.

“China has a high tariff and that makes our vehicles more expensive than competitors, which makes it difficult to be profitable,” Cho said in an interview. “There are a lot of issues that need to be solved before we could go in. But we will definitely go in.”

Hyundai is seeking ways to turn around the China business after sales of its predominantly mid-market lineup fell last year for the first time since 2007 on a slowing economy. One option is to tap into the luxury segment as cuts in sales taxes and looming limits on vehicle registration prompt buyers to splurge on the most expensive car they can afford.

“Hyundai has no choice,” said Heo Pil Seok, chief executive officer of Midas International Asset Management in Seoul. “It’s difficult to expect quantitative growth in the auto market, so companies have to promote luxury models and brands to bring up the profits.”

Shares of Hyundai fell 1.5 percent to 135,500 won in Seoul trading as of 11:16 a.m. while the benchmark Kospi index slid 0.3 percent. Yan Xiaolei, board secretary of BAIC Motor Corp, didn’t immediately reply to an e-mail seeking comment.

China is the biggest market for Hyundai, accounting for 21 percent of unit sales last year. The U.S. accounted for 15 percent of the company’s 4.96 million cars sold in 2015.

Hyundai’s deliveries in China fell 5.1 percent for the year to 1.06 million units, weighed down by an economy likely growing at its slowest pace since 1990.

Most of the world’s top luxury brands, including BMW AG and Volkswagen AG’s Audi, manufacture in China to avoid the taxes that put imported vehicles at a disadvantage. A locally produced Mercedes-Benz E-class model sells for about 398,000 yuan ($60,378), while Hyundai’s imported Genesis sedan is priced at about 458,000 yuan, according to Autohome, a popular car-pricing portal.

Hyundai’s strategy centers around creating a separate marque for Genesis, much like Toyota Motor Corp. did with the Lexus. The vehicle now called the Hyundai Genesis will be rechristened the Genesis G80, and the current Equus will become the Genesis G90.

Hyundai also is removing its name from advertisements for Genesis as it works toward an eventual spinoff. The cars will be showcased at Hyundai dealerships until the company fleshes out the lineup with six models by 2020, when it will consider setting up separate showrooms.

Sales may start in the U.S. as soon as the middle of this year, Cho said. He wouldn’t elaborate on the timetable for manufacturing the cars in China, saying a decision hasn’t been made. Until then, they will be made at Hyundai factories in South Korea.

Luxury Jungle

Hyundai is upping its efforts after China regulators in October reduced a small-vehicle purchase tax by half. Buyers also may be motivated by the fear that auto-registration caps imposed in seven cities -- including Beijing, Shanghai and Shenzhen -- may spread to others.

“The luxury-car front is like a jungle right now,” said Kim Pill Soo, an automotive engineering professor at Daelim University College in South Korea. “Everyone wants a piece of that market, so for a newcomer like the Genesis, establishing a unique identity for its cars and the brand will be very important.”

To prepare, Hyundai will showcase the new marque at the North American International Auto Show in Detroit starting this month. The first Genesis sedan was introduced there in 2008.

“We had the car but didn’t have the brand,” Cho said. “Now the team will work on that.”

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