Hyundai Motor gambles on the luxury market

Hyundai Motor Chairman Chung Mong-koo proved the Korean automaker can build reliable, value-for-money cars by beating Toyota Motor and Volkswagen in benchmark U.S. quality surveys. His son now wants to show that Hyundai can be synonymous with luxury, too.

Hyundai will start sales next month of its new G80 midsized sedan in Korea, the second of a six-model lineup planned for its burgeoning premium marque called Genesis. Vice Chairman Chung Eui-sun, the son of the chairman, has been fronting the brand, introducing it in Seoul in November, then announcing plans to spin it off into a standalone division at the Detroit auto show two months later.

The stakes are high for Hyundai, which faces competition in the low end of the market from Chinese brands after missing its sales target last year for the first time since the global financial crisis. While luxury cars command a premium and are typically more profitable, the field is crowded and dominated by the German duo BMW and Mercedes-Benz. Among Hyundai’s Japanese rivals competing in the segment, only Toyota Motor’s Lexus has given the Germans a serious run for their money.

“Chung Eui-sun needs a monumental achievement for Hyundai,” said Ko Tae-bong, senior auto analyst at Hi Investment & Securities in Seoul. “Especially when Hyundai is facing limited demand for its value-for-money cars, the luxury brand, of course, will be the next step.”

To help bolster Hyundai’s luxury prospects, E.S. Chung, as he’s sometimes known in foreign media, hired two high-profile designers from Bentley Motors -- Luc Donckerwolke and Lee Sang-yup -- as well as Manfred Fitzgerald, a branding executive from Lamborghini. The new hires, dubbed the “foreign avengers” in Korean, join Peter Schreyer, who left Volkswagen to oversee design at Hyundai and affiliate Kia Motors.

The younger Chung’s “level of managing the Genesis brand is exceptional,” Fitzgerald, now senior vice president at Hyundai Motor, said in an interview at the Busan motor show last week. “He is involved in all decisions.”

Hyundai plans to introduce the G80 and the bigger G90 sedan in the United States from the second half of this year, and to gradually expand the Genesis brand to overseas markets. The carmaker is still deciding on options and timing for China and Europe, Fitzgerald said.

To meet strict environmental regulations globally, Genesis is planning to have electric models that would compete with Tesla Motors, he said.

The fledging Genesis brand faces an uphill slog, with most of Hyundai’s mass-market competitors also investing in their premium brands. Both General Motors and Ford Motor say Americans are paying more for their Cadillac and Lincoln models. Cadillac is introducing its new CT6 sedan and XT5 SUV, while Lincoln is reviving the Continental sedan.

Hyundai’s strategy is reminiscent of Toyota’s. The Japanese giant spun off its Lexus division in 2012, separating management and resources from the mainstream Toyota brand with the aim of creating an organization more nimble and responsive to market tastes. Lexus was the top-selling luxury brand in the U.S. for an 11-year stretch that ended in 2011. Hot-sellers including the NX crossover are putting it back in contention with Mercedes and BMW in the U.S.

While selling high-end vehicles will boost profit margins for Hyundai, the carmaker will struggle in the short term with a sedan-only lineup as U.S. consumers are favoring SUVs, according to Jessica Caldwell, director of industry analysis at Edmunds.com. Bloomberg