Hyundai Genesis offers luxury for less, may help image, sales

LOS ANGELES -- Ron Olsen could have bought a Mercedes-Benz, BMW, Lexus or another Cadillac.

Instead, the Boeing retiree decided to part with $40,000 for the new kid in the luxury sedan market — a Hyundai Genesis.

A what?

A luxury car from the brand known a couple decades ago as cheap, not-always-reliable wheels for college students and pizza deliverers?

Hyundai believes Genesis will show just how far it's come from those days — and will be the ideal luxury car for post-financial-meltdown America. Maximum features. Minimum snobbery. A value proposition vs. more expensive brand-name luxury.

The Genesis is the culmination for Hyundai of a painstaking effort to become a big-league U.S. brand. It's also fraught with risk. Genesis is betting that notoriously snooty luxury buyers can live without a Mercedes three-pointed star or other status emblem on their hood.

Hyundai also is taking a calculated risk by not creating a costly separate division for its luxury product, such as Toyota did with Lexus. It is banking that shoppers will buy a luxury car from dealers not devoted solely to pampering luxury customers. Genesis may sit door-to-door in the showroom with (horrors!) an $11,745 entry-level Accent sedan.

"It's like buying an Armani suit from Wal-Mart," observes David Champion, auto editor for Consumer Reports magazine.

Early results are lukewarm, with 3,976 sold since the six-cylinder Genesis went on sale over the summer. Buyers may have been waiting, however, for the top-of-the-line, 375-horsepower V-8 version, which didn't arrive until October.

Hyundai isn't the first to hawk luxury in a non-luxury store.

Volkswagen gloriously flopped with an upscale sedan brought to the U.S. in 2003. Phaeton, priced from about $70,000 to about $100,000 for a 12-cylinder version, lasted a couple of years before VW yanked it from this market.

Hyundai leaders say Genesis will do better than Phaeton because its price isn't floating so far above the rest of the lineup. Genesis, they add, is a lot of car for the money — fitting the Hyundai brand's value image.

"Price-wise, Genesis is $10,000 or $20,000 less than all the (luxury brand) competitors," says Kim Dong-Jin, until recently CEO of Hyundai Motor in South Korea and now head of its parts operation. "Therefore, we see the Genesis as a good product for the U.S. customers, particularly in the recessionary period."

In fact, they hope Genesis defines a new car segment: a premium machine for the rich and frugal who appreciate the finer things but don't like to show off.

Genesis starts at $33,000, including shipping, for the six-cylinder. That's about the same as a Mercedes C-Class or Lexus ES, but the size and features are aimed closer to the MB E-Class ($54,075 with shipping to start) or Lexus GS 350 ($45,675).

Gas mileage is in keeping with the value image, too. The six gets 27 miles per gallon on the highway; the V-8, 25 mpg.

Genesis is discreet, though, about its Hyundai heritage. The automaker's "flying H" logo — but not the name — is seen on the center of the trunk lid and of the steering wheel. But it says simply "Genesis" below the taillight and on the door sills.

That modesty is a concession to owners who may not want to trumpet that they paid up to $42,000 for a Hyundai, even if that model is loaded with features that include a 17-speaker stereo and heated and cooled seats.

Olsen, 72, of Everett, Wash., says he takes some ribbing from golfing buddies for giving up his Cadillac DeVille for a black Genesis. "I tell them, 'It's a Genesis, not a Hyundai,' " noting that they'd never refer to their Lexuses as Toyotas.

Showing how far it's come

Executives hope Genesis lifts the entire Hyundai brand. They want it to show how quality has improved, even with Hyundai's signature 100,000-mile warranty, introduced nearly a decade ago in a bid to regain trust. Since then, it has patiently worked to inch up market share and catch up with rivals' technology.

"Genesis says we're a global player. We can compete with anybody on style and value," says Dave Zuchowski, Hyundai America's vice president of sales.

Hyundai still is a distant seventh in U.S. sales behind the Detroit 3 and Japan's Big 3 through October of this year, Autodata reports. But sales are down only about 8% from 2007 to about 360,000 — respectable in today's sales implosion — while its share moved above 3%.

There are other signs the brand is gaining traction. As recently as 2005, focus groups called Hyundai "unapproachable." This year, more are picking terms such as "young, playful and a little quirky" and "for smart people," says Joel Ewanick, Hyundai's marketing chief.

"You're seeing the tipping point," he says. "This is when the consumer is discovering it."

In 2000, only about 6% of car shoppers put Hyundai models on their consideration list. This year, it's 25% — good, but still not as good as Toyota and Honda.

"Still a perception gap," Dong-Jin says. "It takes time. There is no quick fix."

Hyundai strongest in basics

Hyundai has been most successful with its everyday vehicles, such as its Elantra and Sonata sedans and the Santa Fe crossover SUV. It has had a harder time pitching more upscale products, such as the Azera sedan and Veracruz crossover, which can carry stickers north of $30,000 with popular options.

Regarding Veracruz, Consumer Reports' Champion says, "I'm not sure whether it (the field) is getting too crowded or people are unwilling to spend more than $30,000 on a Hyundai."

As a result, and mindful of the current economy, Hyundai officials are lowering sales expectations for Genesis. It may end up generating maybe 5% of Hyundai's U.S. sales, says Zuchowski, "but it's really important from a 'halo' standpoint."

A "halo" is a premium or performance model that bestows image luster on its lesser cousins in the lineup. Most shoppers will buy the cheaper or more practical models — but feel better about doing so.

Richard Baker knows. The Florida dentist and his wife brought her Santa Fe to a dealer to get the oil changed. They left with a Genesis for him and an Elantra for her.

Baker, 38, of Crystal River, Fla., wasn't done. A month later, he traded his first Genesis for another one with the $4,000 technology package. Buying premium sedans from a Hyundai store wasn't an issue. "I'm not a fancy person," says Baker, who traded his Toyota Avalon.

Luxury by any other name

Hyundai studied the idea of a separate unit with its own brand name for the Genesis sedan and sexy coupe due next year — the way Toyota, Honda and Nissan created Lexus, Infiniti and Acura for premium models — says Bob Cosmai, a former Hyundai Motor America CEO. It found creating a separate dealer network requires lots of money and patience. Luxury divisions sometimes aren't profitable for a decade.

A risk, however, is that many luxury customers have come to expect the pampering they can get at dealers that sell only premium vehicles, says Tom Libby of the Power Information Network. Lexus owners "come home speechless about how well they were treated," he says.

Many luxury dealers offer service customers loaner cars and roadside assistance, for instance. And three of the four top-rated brands for customer service in J.D. Power and Associates' 2008 survey were luxury brands: Jaguar, Cadillac and Lexus. Hyundai ranked 22, the industry average.

Hyundai salespeople are getting "a different kind of training" to handle potential Genesis buyers, says Scott Fink, who owns dealerships in New Port Richey and Wesley Chapel, Fla. The training is "making it clear these consumers have much higher expectations."

Even without a luxury unit, some experts think Hyundai has a shot. While noting the difficulty in taking on the likes of BMW and Lexus, Michael Silverstein, a senior partner with the Boston Consulting Group, says "if Hyundai has the staying power," and underprices its chief rivals, "the market will move their way."

Hyundai also must be willing to make a huge outlay for ads, even though the high-end market is less than 10% of sales, says Silverstein, whose books include Trading Up: Why Consumers Want Luxury Goods.

Milton Pedraza, CEO of the Luxury Institute, credits Hyundai with having turned around the core brand to a point where it can reach out to luxury buyers under that name. Genesis "can only enhance their reputation."

It worked for Brian Singletary.

The supermarket manager in New Port Richey says he happily left behind his Lincoln for a Genesis. He says he loves the smooth ride and gets luxury-car status at a local casino: Valets park the Genesis right on the curb with other luxury cars.

"Once I got into this (Genesis), there was no need to go shopping further," Singletary says.

Olsen says he'll stack his South Korea-made Hyundai against the best from Germany or Japan. He raves about the leather upholstery, fancy stereo and power that gives him "a helluva time" keeping his speed from creeping past 80 mph on the highway.

He says his friends tell him it looks like a BMW or a Mercedes, but says that status is not important to him. "I looked at more than just a name."