In part three of our interview with John Krafcik, Acting president and CEO of Hyundai America, John talks about the challenges awaiting Hyundai in the future and shares his thoughts on the Detroit situation... and endures one more Genesis question from Aaron.
AARON GOLD: What's stopping Hyundai from being the number one automaker in the US?
JOHN KRAFCIK: Right now, let me say where we are. We're the number 7 brand in the US, which I think is interesting. We're a 3% market share company, but in this incredibly fragmented market, with over 30 brands, last year we moved to number seven. We had been number 10 for the last couple of years. So we trail really terrific strong brands like Toyota, Honda and Nissan, Ford, Chevrolet, and Dodge, and we're number 7 behind those six. I think for us it's a matter of time. We're 22 years in the US. Our key Japanese competitors have been in market for about 50 years. And if you look at the gestation of those brands and where they were after 20 years in the US, you say, yeah, Hyundai's on a pretty good growth path. But for us it's a long journey, and we don't have any aspirations to be the number one brand in the US. I think we have a different goal, which is to absolutely delight all of our customers and please them, one car at a time, and we think if we do that, eventually we'll do better, and we'll see better sales results than we're seeing right now. Which are looking pretty good, I don't know if you've seen our January [2009] sales... but if you look at where the industry analysts say our industry is going to end up this month, sales are going to be off roughly speaking 20 to 30%, folks believe. [NOTE: The actual figure was 37%.] We're going to show a 14% sales increase, January over January.
AG: Do you think that's based on value, do you think it's based on strength of the product -- what do you think accounts for that?
JOHN KRAFCIK: A lot of things are working for us right now. We do have a strong value reputation, we have a strong fuel economy reputation, but getting to the value point, right now, if you look at pricing the way we do, which is adjusting for content, we're at 97% of Toyota pricing, which might surprise you. It might surprise your readers that we are that close to Toyota.
AG: You're talking about transaction prices? [NOTE: Transaction price is the actual negotiated price that is paid for a car.]
JOHN KRAFCIK: MSRP. [MSRP = sticker price]
AG: MSRP?
JOHN KRAFCIK: MSRP is about 97%.
AG: I didn't realize it was that close.
JOHN KRAFCIK: It is very, very close, and if you go back just 7 or 8 years, we were, roughly speaking, 85% of Toyota. So what traditionally had been a 15% discount versus Toyota is now a 3% discount... But we offer, we think, a lot more, with the warranty... which is 10 years/100,000 miles on the powertrain, 5 years and 60,000 miles bumper-to-bumper, and it's often said our warranty isn't transferrable. It is. If you sell your Hyundai, the new owner gets the full 5 year/60,000 mile bumper-to-bumper warranty. The 10 year/100,000 mile powertrain doesn't transfer, but the 5 year/60,000 mile [does], which is much, much better than any of our big Japanese competitors. So we think, although the value gap has dropped, the cars are now priced more appropriately versus the competition. They are as good as Toyotas, they deserve to be priced close to that brand. We still have a brand gap in terms of what people think of Hyundai versus Toyota, but that is dropping, I think, in a way that you'd expect and be very proud of, as we are. The other key point is, if you just look at the percentage of Americans who are aware of our brand and would be willing to consider buying one, a couple of years ago, Aaron, we were at 11%, so one in ten Americans would have Hyundai on their shopping list. In 2008, we were at 25%. So now it's up to one in four. And that's a wonderful reservoir of future sales, when you think about it. Today we're on the shopping list of 25% of Americans. We have 3% market share. That says we've got opportunity to grow. So what's working for us now is some wonderful third-party recognition. Consumer Reports recognition for cars like Genesis and Elantra. The Car of the Year award for Genesis. Our Hyundai Assurance program, I think, has also resonated in this climate. We're basically seeking to take out a major reservation consumers have right now about buying a car. "Geez, I don't want to be saddled with new car payments. If I lose my job, I'll have to turn in the car, I'll have to deal with the negative equity, I'll have a bad credit rating," right? Hyundai Assurance kind of tackles that issue right on, saying, hey, we're going to get through this together. We're going to find a way to, if you do lose your job, you can just bring the car back, and we'll take it back. 'Cause honestly, that's not going to happen in very many cases.
AG: Hopefully not.
JOHN KRAFCIK: Hopefully not. If the unemployment rate, which is today, what, in the 8% range? I mean, if it goes from 8 to 10 or 11%, and factor that over the total number of car purchases, it's a relatively small number.
AG: So that program's not going to wind up costing you a ton of money, but it sounds like it's going to generate a lot more showroom traffic.
JOHN KRAFCIK: I think it's generated a lot of interest. I think folks have recognized it as a different approach. One thing that we find in today's environment is discounting isn't working like it usually would. Going back a year or two, you could count on a thousand dollar incremental rebate delivering a certain number of incremental sales. In today's environment, that same thousand dollars might deliver one-third of the incremental sales of a year ago. Discounts and rebates aren't working. We needed to address the root cause of the problem, which is, "Oh my God, I might lose my job."
