The Hyundai Approach to Selling Cars

By 24/7 Wall St. Wednesday, Mar. 04, 2009

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Hyundai is now the most successful car company in the U.S. and it has the numbers to prove it. It has come up with a way to sell cars to people who fear that they will be homeless and it works.

Most large car companies posted more significant unit sales drops in February than analysts expected. GM (GM) only sold 268,737 light vehicles. Three years ago, that would have been its take for the July 4th "cash back" weekend. Ford (F) moved 96,044 units, off 48% from the same month last year. As usual, the Ford PR department did what it could to misdirect and dissemble. Early in its statement about last month's sales, Ford pressed the case for how fabulous it new products are. The most important announcement the company thought it was making was that Ford will introduce the new Fusion model during American Idol. It tells Ford's shareholders how out of touch the company's CEO Alan Mulally is. He can be forgiven. He used to work for Boeing (BA). (See pictures of the remains of Detroit.)

The only privately held member of The Big Three, Chrysler, did better than expected. Sales were down 44% to 84,050. Honda (HMC), Toyota (TM), and Nissan all had results down about 40%.

Hyundai sold 30,621 vehicles in the U.S. last month. That is more than half of Nissan's sales which dropped to 54,249. And, Nissan has been a prominent brand in the American car business ever since it was known as Datsun.

Most consumers don't know that Hyundai sells cars. Most Americans don't know that Hyundai exists at all and virtually no one knows where the company is based. The brand does not seem to show up in JD Power customer satisfaction or Consumer Reports rankings.

Hyundai's U.S. car arm is a tiny piece of a Goliath of a company based in South Korea. The firm owns mines, petroleum assets, machinery manufacturing operations, and electronics factories. It also builds commercial tankers that are as long as several football fields. Hyundai Motors has simply out-marketed its competition in the U.S. It builds good cars, at least based on auto reviews. The company's flagship, a four door war-wagon called the Genesis, was named the North American Car of the Year. The beast only gets 17 miles per gallon in city driving, but it is targeted at the affluent, even though their numbers are dwindling. The model competes with the large sedans from BMW, Mercedes, and Lexus. Hyundai seems to have dropped a nice vehicle into each of the major slots in the U.S. car market. It sells a nifty entry-level coupe and has a mammoth minivan called the Entourage. It markets SUVs and small sedans. They don't have any more or less cheap plastic trim in their interiors than a Honda. They are simply serviceable cars and trucks that probably won't break down.

The genius behind the Hyundai approach to selling cars is that it has caught on to a way to get people into showrooms during the worst recession in decades. Every other auto company of any size has a line of vehicles as diverse as Hyundai's and all of its competitors have more recognized brands. But when Hyundai did a bit of research about car buyers it found that 50% of people thinking about buying a car or truck were resisting the urge because they might lose their jobs.

Hyundai took what appears to be a big risk. If someone buys one of the company's cars and losses a job, Hyundai will make the payments for three months. For people still in a bind at the end of that period, the firm will take their cars back.

Making the offer takes a lot of guts. It would seem to be a significant financial risk.

But, as GM and Ford are finding out, losing 50% of monthly sales isn't risky. It's fatal. If The Big Three are each going to loss $1 billion to $2 billion dollars a month, they might as well do it selling cars to people who are likely to get fired.

It is a shame that the most effective car marketing program in America comes from a Korean company.

Douglas A. McIntyre

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