Hyundai on a high
BY MARTON PETTENDY | 3rd Nov 2009
The South Korean brand is the only top-10 automotive brand to increase its sales volume in 2009 while also lifting its market share from just 4.4 per cent in 2008 to seven per cent this year after aggressively increasing its marketing spend during the global financial crisis.
In the process, despite a slow start to the year, Hyundai Motor Company Australia (HMCA) has hoisted itself from eighth to fifth on the list of top-selling brands locally, matching the company’s global position.
HMC’s ambition is to become the world’s fourth-largest car-maker, but HMCA says it is not expected to emulate that ranking in Australia, where it does not compete in the booming utility segment like Toyota, Holden, Ford and Mazda. The latter commands an 8.5 per cent market share as Australia’s top full-line vehicle importer.
After nine consecutive months of growth and a 76.2 per cent sales spike in September, Hyundai’s Australian sales are up 36.4 per cent so far this year, in a market that is 13.1 per cent down.
The result reflects Hyundai’s global performance, with 307,000 September sales being up 61 per cent month-on-month following a 118 per cent sales increase in Korea and a 50 per cent improvement overseas. Hyundai was the world’s fourth best-selling brand based on first-half sales figures.
However, after shattering its parent company’s original 2009 target of a 5.5 per cent market share – the same slice of the global market the Hyundai group snared in the third quarter – HMCA sales and marketing director Kevin McCann now says that level of growth is not sustainable.
“I don’t think it would be healthy for us to continue that pace of growth,” Mr McCann told GoAuto at last week’s launch of the facelifted Santa Fe SUV.
“I think the opportunity for us now is to consolidate our volume and build our brand. I think the way to build brand is, of course, through product.
“On the back of product launches, promote those new products so people are saying, ‘That’s a nice car, I’d like to buy one.’ When that happens you know your brand is working.” Mr McCann said Hyundai had turned the corner in terms of the Australian public’s perception of the brand, but more work needed to be done.
“Five years ago they bought our products because they were the best value,” he said. “Now we want them to choose us from a range of others not because we’re the cheapest but because they want one.
“That’s the job we’ve got to do next year.” HMCA chief executive Edward Lee said his company would shift from growing its market share to building equity in the Hyundai brand, but the challenge now was to get bums on seats.
“Our market share in Australia is very important but another important thing is brand,” he said. “In this market our brand power is relatively weak – I think our brand power is weaker than actual.
“That’s why we have to enhance our brand and then market share will come. At this time we will not focus on market share only, we will focus on both market share and brand.
“Value is very important for the people. We are in a very good position to make products cheaper than many other competitors.
“Of course we have Korean products but they are very good products that compete with Japanese products. People will realise that if they compare, if they drive them, they will realise we are very, very competitive.
“That’s why our strategy is to bring people to test drive and at that point they will realise. We have to change peoples thinking.” The local Hyundai chief said HMCA’s advertising focus would next year focus on new products to build brand value, including the light-sized i20 hatchback, the ix35 compact SUV and the mid-sized YF-series Sonata sedan replacement, all of which will be released in the first half of 2010.
Mr Lee suggested Hyundai could expand beyond its sponsorship of Australia’s A-League soccer championship into other sporting areas as part of a renewed brand push.
“From this time next year we will have a very different situation. It will be a different story because we will have all-new products that are very competitive, so we’ll have a great opportunity to enhance our brand,” he said.
“Product is first and then we will bring some other marketing strategy to grow the brand.
“Probably until now many people think Hyundai is very cheap and good value, but for example (with) advertising from next year we will put more emphasis on brand advertising.
“There are a number of ways to enhance the brand and we will continue with a lot of other sports marketing – that type of strategy will help the brand.” Mr McCann said that with about 53,000 sales to October this year, Hyundai’s 2009 sales result should easily eclipse its all-time record of about 59,500 sales, and could even approach 70,000.
He said that although all three models were strategically important, he hoped to employ the ix35 as the ‘hero’ model to lead its brand awareness campaign. He said Hyundai could launch all three models simultaneously in early 2010, but was more likely to follow the ix35 and i20 with the YF for logistical and marketing reasons.
“Those three new models will present a new face for Hyundai next year,” said Mr McCann.
“(But) we’re juggling a range of issues like how we handle the media, the financial cost in terms of the effect on our cashflow and investment in the first quarter, our internal resources in terms of people to handle the launches, training and the load on the dealer network in understanding new products, and being able to communicate those products.” However, Mr McCann warned Hyundai’s market share and sales volumes would not increase significantly in 2010, despite the addition of three new models – two of which would replace or bolster top-selling models in volume segments – and freer supplies of the i30, Australia’s third best-selling small car.
“In the sense of the overall year I would not want to go backwards at all,” he said. “I want to see some growth, even if it’s modest growth.
“Having said that, simply because of the completely different pattern of product introductions next year there will be months where were are down versus the corresponding month in the previous year.
“It’s just not physically possible to maintain that, but equally other months will be up which should compensate for that.” Mr Lee also said HMCA’s sales were unlikely to increase in 2010.
“Of course I want to sell more than this year but the more important thing is how to build our brand with the new products, how to penetrate this market with the brand,” he said.
“Probably we will not achieve a lot more volume compared to this year. But the important thing is to be successful with the new product and then we will seek new opportunities to grow the brand.” HMCA marketing manager Oliver Mann described 2010 as “a huge year for us” in which the brand, though its all-new models, would present a new face to the Australian public.
“We've been moving away from an aggressive retail brand sold primarily on price, to one with more brand equity," said Mr Mann. “The i30 successfully targeted indifferent 'passive' rejectors of the brand and the next stage now is the 'active' rejectors who think they know the product but don't.
"2010 will be a huge year for us. I don’t think we'll reinvent ourselves but the three new products will present an all-new face for Hyundai." Hyundai Motor Group research last week predicted a six per cent increase in global automotive sales to 65 million vehicles in 2010.
The Korea Automotive Research Institute (KARI) report said that while demand would rise next year as the industry emerged from the economic crisis, a full recovery would not be made until after 2011 due to rising oil prices and the scrapping of government stimulus measures.
Mr McCann said Hyundai’s Australian market share in the final quarter of this year would reflect its 2010 share, before the brand’s next growth phase occurs in 2011.
“I would like to think that the baseline for the last three months of this year will dictate next year’s share – next year’s share should be the same as the last three months of this year,” he said.
“So we should definitely be seven-plus (per cent) next year.
“When I joined the company in 2007 I was told my job was top get to five per cent. This year’s initial target was 5.5 per cent but earlier this year I was told you’ve now got a new mission and it’s seven per cent.
“I guess when I get above seven I get a new mission.
“When HMC bought back the distributorship in (October) 2003, I think they wanted to increase by 10,000 a year – 40, 50, 60, 70, 80 (thousand). I think that was what’s now known as a moment of irrational exuberance.
“My view is that growth is based on a combination of product life cycles – you can only grow with product.
“I think that the first full year of any new product is usually its best year, so next year will be relatively flat as new products ramp up, but 2011 will be a good year for us.” Hyundai’s head of Australian sales said the internet was playing an expanded role in the car-buying process for private customers.
“We’re seeing more and more people spending more time getting information online before they go to a dealership,” said Mr McCann.
“People who go into dealerships are not a fresh prospect – they’re much closer to their confirmed prospect, so we’re seeing changes to that, but nonetheless the ratio from total inquiries to demos and orders continues to run at a healthy rate.
“We’re seeing a fair bit of strength in the private segments, which is what we’re measuring there, until the end of the year.
“The federal tax allowance will (help with business vehicle sales), but the variable is the rental car companies, who won’t buy for a few months. But with the economic recovery we expect them to come into the market by the end of the year, so there will be an upside opportunity from that.” HMC has just recorded two consecutive quarters of record profit growth, thanks in part to the strength of the Korean currency. South Korea’s largest car-maker sold 824,181 vehicles in the third quarter, a 41.4 per cent increase on 2008 figures, generating an operating profit of 587 billion won ($A545 million) in the quarter – up 462 per cent on Q3, 2008.
Mr Lee denied Hyundai’s exploding Australian market share had come at the expense of profitability, but admitted that without an injection of funds from its parent company to increase its marketing activity the Sydney-based company’s profit level would be lower.
“Yes, we will be profitable (this year), but there is some story actually,” he said. “HMC has supported our market – that’s why we spent more than last year, but still we are profitable.
“From the first of this year our chairman said that given the global economy this is our chance to grow our market share. He called everyone to be aggressive and we set very high targets and almost everybody achieved them.
“HMC supported us in that. That’s why with that subsidy we will be profitable. Without that subsidy we could be profitable but not very much – less profitable.” Mr McCann explained further: “Profitability is a very complex question. Last year’s performance was pretty draining on us because we had significant stock problems in the middle and third quarters because of industrial action in Korea, so it was very draining to maintain momentum.
“Then in the early part of this year once we had out strategy signed off for the year the company said they’d support us because our strategy based on the volume that we planned at the beginning of the year, based on a 5.5 per cent market share, we weren’t profitable and they said they’d help us with the difference.
“However, as it tuned out we’ve continued to sell so far above our budget that simply by selling more cars we’ve generated more gross revenue which has in turn helped pay the bills, so that subsidy that was promised and which was significant didn’t have to be sent.
“We’ve managed to sell enough and consistently above our breakeven point to be profitable on a consistent basis.
“It (the subsidy) wasn’t held back but we didn’t have to call for it. It was there if we needed it and we budgeted accordingly, but the plan worked and we didn’t have to call on it.” Mr McCann said there was no pressure from HMC for its Australian division to be the nation’s fourth best-selling brand.
“We’ve always tracked the global picture one or two positions lower in the rank and there are two reasons for that,” he said.
“One is the company’s extraordinary strength in the company’s domestic market, in which it holds over 50 per cent market share, and second is the skew of the Australian market towards some segments in which we don’t have representation, such as pick-up and cab-chassis.
“So we fixed the commercial problem (with the iMax and iLoad vans, more of which are sold in Australia than any other country), but there’s no solution in sight for the pick-up/cab-chassis issue.
“There’s a certain level of understanding that Australia will continue to run one or two positions behind the global ranking. For us their expectation is more about market share and volume and pricing.”
