Building Sonatas nobody wants

[Flybrian]

Hyundai's House of Pain

David Kiley | Link to Original Article @ BusinessWeek

Hyundai is definitely a brand with growing pains.

The Korean company has taken a hard, and embarrassing step in idling its Alabama assembly plant an additional week. The truth is that the company has been parking cars on the fence at the factory all year long. That means they have been building thousands of cars at a time with no dealer orders for them.

Hyundai makes the Sonata sedan and Santa Fe crossover at the plant. The Sonata is most of the problem. A very good car, in my opinion. But the competition in the mid-sized sedan market is brutal, especially in a softening market.

My God. To get to a Sonata, you have to bypass a new Accord and Altima, as well as the freshened Camry, Ford Fusion, etc. Everybody does a pretty good job in this category (except Chrysler: see Sebring).

And as a story I did last May showed, Hyundai’s brand image just isn’t there yet—the imaginative new campaign from Goodby Silverstein notwithstanding.

Recently, Hyundai COO Steve Wilhite left the company after just a year. Hiring Wilhite last year was an indication that Korean management understood that Hyundai needed to do some serious brand spade work if their investments (see now idled plant) are going to pay off. I think Wilhite left when he realized the bar was being set higher than any mortal could reach.

Here’s the mistake. Hyundai has asked marketing to justify huge investments Hyundai has made in product and manufacturing. It should be the other way around. Your successful marketing should drive production schedules and capital investments.

The executive who understood this best was a mostly forgotten car executive named Paul Hahnemann, who led BMW AG’s sales and marketing in the 1960s. It was Hahnemann, by holding an extraordinary amount of influence at BMW, who led the company’s surge by marketing a focused brand. As the payoffs came from his plan, growth through investment in manufacturing and new product categories followed.

Hyundai has said to a succession of U.S. executives: We are setting this enormous stretch goal for sales, and spending all this money on a U.S. plant, so you had better figure out the marketing issue.

That’s like saying to your child: I have spent all this money to build you your own tennis courts, now, by God, you had better learn how to play this game. I think most people would only build the private court if the kid had demonstrated a love and great skill for the game in the first place.

Idling a plant that is so new is a huge slap in the face for the Korean company that has solved so many of its quality issues. I don't think Toyota has ever actually idled a U.S. plant.

[caddycruiser]

The key issue, with the Sonata specifically, is they just fell into the trap of having it 90-95% "great" as of the last redesign and then just going nuts with production...more, more, more, essentially. So, it still sells, but there's been so many new entries in the year or two since it's been out, that it can't help but fall back a bit and sadly become really much so the packed lots--big rebates mid-size star.

The refreshed version, with new interior, etc. is out for next year, but until then, and still with so many other choices, sales aren't going to be brisk for sure. Still, a great appliance car like so many, with proof such as the flawless 40k+ beating C&D put one through over a year, and actually a big fan base...but there's only so many sedan buyers, and with so many choices, you HAVE to offer them something truly unique to make a difference.

So, it's just a minor growing pain for Hyundai at the moment, a company who I still think is and can continue to do great things, just cautiously still.

[Intrepidation]

They could start with redesigning that cheap looking badge...

[jbartley]

haha. too funny!

[ehaase]

Overcapacity is one of the largest problems in the auto industry. Too many cars chasing too few buyers.

[regfootball]

that sedan segment is too crowded and buyers are abandoning sedans to begin with.

after that, subtract out the lemmings (camry and accord buyers) and you have not a lot of sales for a WHOLE bunch of cars.

if the economy was anything close to good and if more than 10% of the people in this country were doing well, i think you'd have room for everyone.

Edited October 14, 2007 by regfootball

[K.C.]

I guess Hyundai did not learn from Chrysler's mistakes.

[Hoeyhimself]

Maybe if we just treat Hyundai like they are not really an auto manufacturer, they will just, fade away. I really just wish they would, rather then over producing cars for people that think "all cars today look the same"...taking advantage of ignorance is wrong.

[Z-06]

I think Hyundai is going the Mitsubishi way, but not that fast.

[chevelle454]

Hyundai just go away and die and take Kia with you!

Hyundais and Kias Slogan should be. "It only looks like a real car"