Genesis plans to stop selling its high-line products through Hyundai dealerships and will now set up 100 of its own luxury showrooms.
The announcement comes as the latest step by parent Hyundai Motor Co. to take on better-established rivals like Mercedes-Benz, BMW and Lexus. And it acknowledges one of the few major complaints buyers and shoppers have had about Genesis since its official launch in 2016.
The Hyundai spinoff has scored well in quality and feature surveys by the likes of J.D. Power and Strategic Vision, but “The one thing we continued to get (negative) feedback on was the buying experience,” Genesis General Manager Erwin Raphael told TheDetroitBureau.com.
“Customers who buy luxury vehicles are really looking for a different experience, one we’d be challenged to provide through a volume network” like Hyundai.
The parent automaker first used the Genesis name in 2007, initially as the name for a mid-luxury model topping the Hyundai line-up. After years of debate, the Korean carmaker decided to spin off Genesis as a brand. The old Genesis sedan was renamed the G80, with the newer even more upscale Hyundai Equus redesigned and rebadged the Genesis G90.
(Hyundai posts disappointing earnings results. Click Here to see how the company fared.)
The G80 is currently sold through all 840 U.S. Hyundai dealers, the rest of the Genesis line-up through a smaller selection of showrooms. Going forward, the luxury line will only be marketed through a select group of dealerships that agree to set up standalone facilities. The goal is to have 100 of those in place by January 2021, Raphael explained.
Hyundai dealers who will not get exclusive franchises will continue to be able to sell off existing inventories of the G80 through the end of the 2018 model-year. Only those select 100 outlets will get Genesis products starting with the 2019 model-year, the brand boss said, adding that other Hyundai dealers will get “a compensation package (including) a goodwill component” to cover the loss of the popular G80 model.
He acknowledged, during a Monday telephone interview, that “There likely will be a short-term hit to volume” for the brand as it walks away from hundreds of showrooms, “but we are focused to deliver the right experience for our customers,” and are willing to accept what Raphael described as “growing pains.”
Hyundai planners initially were skeptical about setting up a standalone franchise network because of the cost-benefit ratio. A dealership in a major, or even mid-ranked urban area can cost $5 million and up – a Mercedes showroom in the Phoenix area recently selling for around $100 million. With sales of just 20,594 vehicles for the brand last year, that can be difficult to justify as an investment. But it is clear that Genesis expects to grow fast.
Raphael said the goal is to move about 1,000 vehicles per showroom once the standalone network is fully operation, “which makes the dealer very, very competitive.”
(Click Here for details about Genesis’ 3 Series fighter, the G70.)
It also offers a hint into Genesis growth plans, suggesting it expects at least five-fold growth by the beginning of 2021.
It will help to have more product for those Genesis dealers. Raphael confided that “By then will have a third sedan (the G70 coming out about six months from now), and our first SUV and we’ll be on heels of a second SUV and we’ve communicated to our dealers more product is coming.”
If there is any readily apparent challenge for Genesis it’s the lack of an SUV in a market where utility vehicles now account for about half of all sales. The brand’s first SUV will be a production take on the GV80 unveiled at the April 2017 New York Auto Show. It will arrive sometime during calendar-year 2019, said Raphael.
Adding a utility vehicle, he is betting, will more than double the Genesis brand’s unaided awareness factor, currently at a mere 4%. Even then, the G80 was able to capture about 9.6% of its mid-luxury segment.
If Genesis can hit 100,000 sales by the beginning of 2021 it may also have to start considering another critical move: setting up a North American assembly plant. At least until then, it appears likely the brand’s products will continue to be imported from South Korea. The break point where local production is justified is around 200,000, suggested Raphael. But other factors can come into play. Volvo is betting that with the opening of its first U.S. plant later this year it will add momentum to its already solid sales growth.
(To see more about Genesis’ plans for a luxury ute, Click Here.)
Genesis is also looking at other issues it will have to address. With tough new emissions and mileage standards coming – especially in California – most automakers expect to have to start adding electrified vehicles to their line-ups. Hyundai has already announced plans for an assortment of new battery- and hydrogen-powered models. And so, while there’s nothing to announce for now, Raphael said, “Obviously we are working on alternative propulsion systems, including electrified.”