Korean auto giant bets on Chinese market

Hyundai Motor plans to launch its first luxury car under the Genesis brand in China in the next two to three years.

According to Reuters, Genesis car brand CEO Manfred Fitzgerald said the company is considering producing these models in China. "That is for sure. However, there are many car companies that can survive in this market even if they only import cars to sell," Mr. Fitzgerald was referring to Toyota Motor's luxury car brand Lexus.

Hyundai's development plan is ambitious in helping the company escape 10 consecutive quarters of net losses, partly due to poor sales of its cars in China.

The launch of Genesis in an important market like China marks a new shift for an automaker that has traditionally made cars for the masses. However, the company still lacks the prestige and tradition of making luxury cars like the German trio BMW, Mercedes-Benz and Audi, which dominate the global luxury segment, including China.

Hyundai is betting on the Chinese market with luxury cars and an American CEO.

“The wealthy Chinese customer base is very concerned about brand value,” said Fitzgerald, the American who used to run Audi’s Lamborghini brand. He shared this information at Genesis’s only store in South Korea in the Hanam district on the outskirts of Seoul. A Genesis G80 sedan here sells for 75 million won (about $67,100).

“If you don’t position the brand value from the beginning, even if you have the best product in the world, no one will buy it,” Fitzgerald concluded, while declining to share information about Genesis’ sales plans, even though the brand launched in Korea in late 2015 and in the US in August 2016.

Car import tax in China is 20%. This puts pressure on domestic production on the shoulders of car manufacturers here.

Genesis plans to open more standalone stores globally and is scouting locations for its first U.S. store. The brand currently has just two models and will expand to six by 2020.

Choosing the right distribution channel is just as important as product quality, says consultant Eric Noble of California-based consulting firm CarLab.

Today, 300 of Hyundai’s 800 U.S. stores sell Genesis models alongside other low-cost Hyundai vehicles, while rival Lexus has showrooms dedicated to the brand.

"In terms of product quality, the Genesis brand is really impressive. However, in terms of distribution, there are many things the company has to reconsider if it wants to sell cars in the North American market," Eric Noble shared.

Hyundai Motor Group Chairman Chung Mong-koo, 78, took the helm of Hyundai and Kia Motors in the 2000s and turned the two brands into the world's fifth-largest automaker, focusing on small, low-cost but good-quality cars.

Now, Chung Eui-sun, son of Chung Mong-koo, is vice chairman of the group and has ambitions to raise the value of the Hyundai brand. He was the one who decided to separate Genesis from Hyundai and establish a new independent brand. His ambition is to penetrate the luxury car market, escape the now saturated mass market to achieve higher profit margins.

Fitzgerald said the decision to join Genesis was a "huge" one for a company that has traditionally not hired from outside. "I know the road ahead will be long and difficult, but we are determined to achieve our goals," he said.

According to VNE