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Despite timing, Hyundai enters luxury market

They admit the timing isn't great to bring out a big luxury car to compete with BMW, Lexus and Mercedes, but Hyundai Motor Co. executives are hoping the new Genesis sedan will catch on with a specific group of U.S. buyers.
/ Source: The Associated Press

They admit the timing isn't great to bring out a big luxury car to compete with BMW, Lexus and Mercedes, but Hyundai Motor Co. executives are hoping the new Genesis sedan will catch on with a specific group of U.S. buyers.

"Confident nonconformists," said John Krafcik, vice president of product development for Hyundai North America. "They're folks who don't typically need the social badge of a premium brand. They're confident in themselves and in their own skin."

Conformist or not, there were far fewer luxury buyers out there in the first seven months of this year due to high gas prices, tighter credit requirements, economic uncertainty and declining home values that have cut into the typical buyer's net worth.

Luxury car sales are down nearly 15 percent from the same period last year, and industry analysts say it doesn't look like recovery is coming anytime soon. In addition, leasing, used by about half of U.S. premium vehicle buyers, is getting more difficult and likely will further cut into the market.

Enter the Genesis, which started hitting showrooms in small numbers at the end of June.

"The timing isn't the best," said Aaron Bragman, an auto analyst with the consulting company Global Insight.

Yet Krafcik said the Genesis, which was painstakingly engineered to be lighter, quicker, quieter and handle better than most competitors, should be able to attract buyers in a tough market due to its price, features and performance.

A six-cylinder Genesis has a base price of $32,250, with the soon-to-arrive V-8 starting at $37,250, excluding freight. That's at least $10,000 less than high-end competitors, but more than the price of what Hyundai considers its primary competition, cars like the Pontiac G8 ($26,910 with a V-6) and Chrysler 300 ($25,150 also with a V-6).

Analysts say the Genesis is competitive with even Mercedes, BMW and Lexus, with high-quality materials and great driving dynamics. But Bragman said it doesn't have the prestige of the high-end brands that luxury buyers often seek.

"It all does come down to the badge," said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates. "How much will the Hyundai badge deter buyers who want a premium vehicle?"

Volkswagen, Bragman said, failed when it tried to enter the luxury market with the $70,000 Phaeton earlier this decade, and South Korean-headquartered Hyundai faces the same brand-image obstacle. The Genesis will be assembled in Korea.

"It was an extremely expensive vehicle with a Volkswagen badge on it," Bragman said.

But Krafcik said with a far lower sticker price, the Genesis is not the Phaeton.

Still, he said Hyundai has some explaining to do. The marketing plans for the Genesis, he said, point out how thoughtful the company was in designing its first luxury entry.

"We recognize that we've got this burden of proof," Krafcik said Wednesday while showing off the new car to automotive reporters.

Television ads already are starting to air, and Hyundai was fortunate enough to get the first 30-second spot after U.S. Olympic swimmer Michael Phelps won his eighth gold medal in Beijing, Krafcik said.

Bragman said Hyundai also has to use an economy car dealership network to compete against premium dealers who are used to satisfying their customers' every whim for a price.

"It's the whole showroom," he said. "The same sales guy who is going to sell you your luxury car is going to sell you a teeny subcompact."

Krafcik said Hyundai dealers have responded well to training on how to handle luxury buyers.

The company, he said, eventually hopes to sell 50,000 Genesis models per year, including a new coupe coming early next year.

He said the slumping economy in a way should help the car, attracting buyers who may not be able to spend as much on a high-end vehicle but want to keep the performance and features of a luxury car.

"That's part of the reason why we're gaining market share this year," Krafcik said.

Already, the company is seeing people trade in BMW, Mercedes and Lexus models for the Genesis, which Hyundai hopes will boost the company's brand image.

Schuster said despite headwinds and formidable competition, Hyundai could still carve out a share of the market.

"This is moving the brand in a different direction and you're starting to push up against some heavy hitters out there in terms of brand image," he said. "It's difficult to go after that with a product from more of a mainstream brand."