Market Insight: Hyundai shifts fleet focus

FLEET sales strengthen an OEM’s sales while broadening its audience through use by its drivers and from presence on the road. But it can have disadvantages, including depressing resale values when large volumes of the brand’s models hit the used-car market.

Profit margins for the OEM are smaller than those on a private sale, especially if the fleet company is seeking a large order.

Some companies have a love-hate relationship with fleet business and that often changes depending on market forces.

For Hyundai Motor Company Australia (HMCA), chasing volume through fleet sales has cost it business in the past – and it does not plan on doing the same thing again.

HMCA says it is not walking away from fleet business, just unprofitable fleet business. It said that a lot of this trend – which is replicated across much of the industry – has been triggered by the new-vehicle supply constraints over the past few years.

This tightening of supply has been one reason for the decline in fleet sales as it limited the high-volume fleet business in favour of retail buyers.

A quick glance at the brand’s proportions since 2010 show that sales to fleet customers have almost halved, primarily in the rental sector which is down to one-fifth of historic levels.

Meanwhile, private sales have strengthened, up by 20 per cent compared with 2010, and government and corporate sales remain steady at around 15 per cent.

Hyundai said that these two buyer types will continue to play an important role in volume aspirations for the future.

In total sales across the market, HMCA recorded 80,038 sales in 2010 and a 7.7 per cent market share.

As the brand grew increasingly popular based on reputation and a string of appealing new products, sales hit 102,004 units in 2015 to earn a market share of 8.8 per cent. Hyundai currently holds a 6.5 per cent market share and has sold 37,707 units to the end of June.

HMCA chief operating officer John Kett told media at the recent second-generation Kona small SUV launch that the brand’s hell-for-leather push to hit 100,000 sales in the mid-2010s ultimately came at the cost of the business when it cames to profits, and customer relations with private and small business buyers.

Fleet volume composed 28 per cent of the brand’s sales in 2015 while the government and corporate portion fell to six per cent and rentals comprised 10 per cent. Private sales were 45 per cent, one of the lowest in HMCA’s previous decade.

Mr Kett suggested that the local arm of Hyundai has pivoted away from its push to be the number-two brand in Australia behind Toyota, in order to become a more profitable company with higher-priced models and a broader range of electric and electrified vehicles.

He said a recent trip to Korea with Australian dealers made it clear to them that the brand is taking a different tack, even if that means shying away from big fleet deals – which Mr Kett said were not the right direction for the brand to hit its profit targets.

“It's a poor business. The majority of our volume to get to scale was fleet,” he said.

“It’s an incredible opportunity when it's incremental to our core business, which is private and small businesses that drive the higher trim and the N Line.

“So we never see it as a villain. We just see it as what it should be, which is complimentary volume and long-term business relationships over the core of our business. Unfortunately, historically, we had it the other way around.”

Hyundai Motor Company Australia’s new take on fleet business is reflected in its sales proportions.

Mr Kett said that looking ahead at products coming in for the rest of this decade helped Hyundai understand the “reinvention” of the business.

“In May we had a chance to take 1200 of our best friends, our Hyundai dealers who are still with us in terms of that full push for scale that got us to 100,000 units in 2016, and stood by us as we had to reinvent our business to be focused on the consumer,” he said.

“We knew if we focused on the consumer, they would pay the price that we need them to pay to be profitable, to make sure we were in these product programs.”

Mr Kett described the trip as a chance for Hyundai dealers to “get an insight to our product programs all the way through to 2026 and 2030”.

He said this would enable them to “understand our aspirations for electrification leadership, and the steps that we'd have to take to get there, what we'd have to do as a brand to make that a reality and the portfolio that we'd have to bring – and sometimes the trade-offs that we would have to make, in terms of some ICE vehicles, in terms of not bringing them in but focusing on full electrification”.

“I think what's really important for us is we have our hand up for every single product program in Hyundai,” Mr Kett explained.

“We have an incredible relationship through our product teams. We have our hand up every single product program and we are part of every single product program.

 “This is a reflection of the things that we've done in our business, to grow in profitability for ourselves, to make sure the consumer can relate to our products in terms of evolving with them, and importantly, our distributors that our partners can make money.

“When we get that right and ensure that we sit inside of these product programs. Now what I do know is you'll probably hear before me what products programs will be approved and I can't wait to hear in terms of what you are hearing,” he said.

“The proof will be in us constantly launching new vehicles, constantly authenticating our commitment to this generation-one push in terms of zero emission, and how we're going to get there. That can only be proved by us.”

Appropriately, Mr Kett made these comments during the launch of a model which has increased significantly in price compared to its predecessor, and has become a more premium offering with more high-tech powertrain choices.