News Analysis: Hyundai Motor walks into luxury car market on success of Genesis

Hyundai Motor, South Korea's top automaker, declared its entry into the fast-growing luxury car market with a stand-alone brand Genesis encouraged by the success of premium sedans and more than 10 years of preparations and perseverance.

Hyundai on Wednesday celebrated the launch of its new luxury brand Genesis, saying it will "compete with the world's most renowned luxury car brands" like BMW, Audi and Lexus.

Joining the luxury competitions has long been aspirations of Hyundai Motor Chairman Chung Mong-Koo, but the company took measured approach in order to "accumulate internal capabilities" such as material, research, vehicle tests, electronic technologies and design, Hyundai said in a statement.

Hyundai, the world's fifth-largest automaker by sales combined with its affiliate Kia Motors, decided eventually to "embark on a new journey" from mass market vehicles to luxury models, but its future approach will also be step-by-step, experts said.

LESS RISKY, VIABLE STRATEGY

Hyundai plans to roll out six models under an independent Genesis nameplate by 2020. At first, two models will be on offer, with the current Genesis sedan to be renamed G80 and a new full-size Equus sedan to be dubbed G90 that will come into market in December.

Future Genesis models will follow the company's new alphanumeric naming system, which starts with the letter G standing for the Genesis brand and is joined with a number representing a vehicle segment.

A midsize luxury sedan, named G70, will debut in the second half of 2017, trailed by a large luxury SUV, a luxury sports coupe and a midsize luxury SUV in a gradual manner for three years to 2020.

"Hyundai adopted a strategy that can minimize risks and maximize possibilities for success," Yu Ji-Soo, president of Kookmin University, said in an interview with Xinhua on Friday.

"Possibilities are high for Hyundai to succeed as it has prepared for a long time to enter the luxury car market," said Yu.

It took more than a decade until Hyundai launches its stand-alone premium brand. The first-generation.

Genesis sedan was unveiled in January 2008, about four years after the start in 2004 of its development. The company set up a separate team in a dedicated charge of developing the first Genesis model from design to production.

The second-generation full-size Equus sedan improved the quality and driving performance of Hyundai's high-end vehicles in March 2009, and then in November 2013, the second-generation Genesis sedan capped a series of the company efforts to walk into the upmarket brand.

During the four-year period from 2011, Hyundai had spent more money on research facilities than during the 11-year period from 2000, according to the company.

"The second-generation Genesis sedan, the first model with Hyundai Steel's advanced high-strength steel, is a culmination of the capabilities throughout the Hyundai Motor Group affiliates," said Vice Chairman Chung Eui-Sun, only son of Chairman Chung.

Helped by the group-wide supports, the second-generation Genesis sedan saw its annual global sales surpass the predecessor's annual high by more than 20 percent.

Hyundai's four-door Genesis ranked third with sales of 19,146 units in the U.S. mid-luxury market for the first nine months of 2015, only following Mercedes-Benz's E-Class with 35,325 units and BMW's 5-Series with 33,838 units.

During the January-September period, Genesis sales soared 43.4 percent in the United States, while those for the E-Class and the 5-Series plunged 32.9 percent and 13.6 percent each, according to a National Automobile Dealers Association (NADA) data.

AWESOME, BUT STEP-BY-STEP

"It was very awesome for Hyundai to have outpaced Benz and BMW in the U.S. market with its own luxury brand," Yu said. The Kookmin University president noted that Hyundai's brand image will be gradually enhanced in China, the world's largest auto market, and that it will raise possibilities for the global success of the Genesis brand.

The Genesis success was a leap forward for Hyundai, which was established in December 1967 and assembled the Cortinas for U.S. automaker Ford under license during its initial decade years. Hyundai's first home-made model, the Pony, arrived in January 1976 in technology cooperation with Japan's Mitsubishi Motors.

Hyundai's vice chairman said the company "wants to take another leap forward" by entering the luxury auto market with its stand-alone brand, but he said its steps would be "unhurriedly" and "in a calm and orderly way."

Hyundai had originally considered the launch of its independent brand when it unveiled its first Genesis sedan in 2008, but it was delayed because of the start of the Great Recession. The company's internal reviews also claimed that securing multiple models was mandatory to launch a separate brand.

Since the global financial crisis, global premium car sales had underperformed mass market vehicles. Luxury auto sales tumbled 8.6 percent in 2008 and 12.5 percent in 2009 each, outpacing the falls of 4.8 percent in 2008 and 3 percent in 2009 for mass market vehicles, according to data by the global market researcher IHS.

Premium vehicle sales increases began in 2010 to outpace those of mass market vehicles. From 2010 to 2014, the compound annual growth rate (CAGR) of premium cars reached 10.5 percent, topping the 6 percent rate for mass market vehicles.

"Hyundai has made efforts to improve product quality, and is now seeking to step into the next stage of premium cars at a right time," said Kim Hyun-Cheol, professor at Graduate School of International Studies of Seoul National University.

"Hyundai did a good job to take a step-by-step approach. It's a good flow," he said.

According to Kim, there are three ways of improving a carmaker's brand image. The first is the case of India's Tata Motors, which acquired the premium brands of Jaguar and Land Rover in late 2000s. It costed high and failed to bring a big synergy to Tata as consumers do not connect Land Rover's premium cars to Tata's brand image.

Toyota successfully launched its Lexus premium brand even after establishing new dealerships and showrooms for the separate brand, estimated to cost more than 10 trillion won (around 9 billion U.S. dollars) in the United States and China. But, it is risky as seen in the cases of Nissan's Infiniti and Honda's Acura luxury brands failing to make profits.

The professor said Hyundai's way of sharing dealers between Hyundai and Genesis brands in the initial stage and separating the sales channels in the long term will lessen risks and reduce costs, representing a more viable, less risky approach to the luxury auto market. Enditem