Hyundai Enters Luxury Car Market With New Genesis Brand
Hyundai Motor (HYMLF) will spin off luxury brand Genesis in the U.S., another sign that the South Korean automaker is maturing into a significant competitor to U.S., European and Japanese brands.
The announcement came earlier this week in Seoul, a prelude to next month's unveiling of a new large luxury sedan that will be called the EQ900 in its home country and the G90 in the U.S. The new vehicle will replace Hyundai's Equus luxury sedan.
Initially, Genesis will sell two luxury sedans at Hyundai's current dealerships. The automaker hasn't ruled out a new franchise and separate dealerships for customers of the luxury brand, similar to Toyota's (TM) - Get Report Lexus franchises. By 2021, Hyundai plans to be selling six Genesis models, including an SUV and a crossover.
"Using the Genesis brand name will have a positive impact as the Genesis has proven its quality and worth from the first generation model and has gained popularity in Hyundai's key markets," Shin Chung Kwan, an analyst at KB Investment & Securities, told Bloomberg News. "The new brand will help increase profits and improve the brand image of Hyundai."
In August, Wall Street Journal reviewer Dan Neil called Hyundai -- the world's fifth largest automaker -- "a disruptive force" in the world automotive business. Hyundai introduced Genesis in the U.S. in 2008 and quickly won plaudits for pleasing design, manufacturing excellence and great value, since it offered many of the features of luxury brands such as BMW at a discounted price.
Like General Motors (GM) - Get Report and Ford (F) - Get Report , which are attempting to reinvigorate their luxury franchises, Hyundai faces years of investment that will be measured in the billions of dollars to create a competitive brand.
Hyundai shares are down 2% year to date, compared with the KOSPI 50 Index of top South Korean stocks, which has been flat over the same period. Hyundai and other export-oriented South Korean companies have struggled to produce profit growth as the country's currency has strengthened.
U.S.-based Hyundai executives have expressed confidence that they can sell Genesis successfully against BMW, Lexus, Cadillac and other brands. In recent years the trend in U.S. automaking has been toward more models that may be defined as luxury by their materials and features. Such models yield more profit; likewise, the average transaction price of a new vehicle has creeped higher, currently at about $34,000.
According to Automotive News, Genesis's models will be based on rear-wheel-drive architectures -- counter to the trend of recent years when cars more and more are front-wheel drive. Genesis will operate a separate research and development division from Hyundai's, as well as a separate design studio, run by former Volkswagen AG designer Luc Donckerwolke.
Mike O'Brien, vice president of Hyundai product planning, hinted that Genesis may deviate from requiring opulent stores, the industry standard, toward personalized service that includes at-home test drives and valet pickup and delivery for service.
Doron Levin is host of "In the Driver Seat" on SiriusXM Insight 121, broadcast at noon on Saturday, encore at 9 a.m. Sunday.
The writer disclaims financial interest in the aforementioned companies.