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Hyundai's U.S. chief says rapid sales growth poses challenges

Hyundai Motor America CEO John Krafcik said that with the automaker on track to sell 100,000 more vehicles this year than in 2010, it has to learn to sell from a leaner inventory and fine-tune its factory output.

November 24, 2011|By Jerry Hirsch, Los Angeles Times
  • Hyundai Motor America Chief Executive John Krafcik unveils the Hyundai Azera at the Los Angeles Auto Show last week.
Hyundai Motor America Chief Executive John Krafcik unveils the Hyundai… (Kevork Djansezian, Getty…)

As chief executive of Hyundai Motor America, John Krafcik oversees the sales and marketing arm of one of the fastest-growing auto brands in America.

Led by torrid sales of its Elantra compact sedan, Hyundai has sold almost 550,000 vehicles this year, more than it moved in all of 2011 and a sales record for the South Korean automaker. Sales have risen almost 21% through the first 10 months of this year, double the rate of the entire U.S. auto sales market.

Krafcik talked with The Times about that rapid growth, the challenges of managing a tight turnover and his plans for Hyundai, which also sells the upscale Genesis and Equus brands.

Q: You are on track to sell about 100,000 more vehicles than you did last year, and set a record for the brand in the U.S. How are you dealing with that increased volume and tight inventory levels?

A: We have the lowest inventory levels in the entire industry in terms of day supply. It is maybe half of what it was last year. We are learning how to sell from a leaner inventory, and that allows us to sell more cars compared to if we had maintained the same inventory of last year.

But the major portion of our growth has come from production. This year we will build about 336,000 cars in Alabama; that's about 10% more. We have incremental production out of Georgia. [Hyundai gets most of its Elantra and Sonata sedans from a factory in Montgomery, Ala. Some SUVs come from a factory operated by its corporate sibling Kia Motors America in West Point, Ga.]

We have taken production from about 300,000 in 2010 to close to 420,000 in 2011. Some of that goes to Canada, which is a big export market for us, but that gives us about 100,000 in incremental sales.

Factory capacity is a very fluid term. There are always ways to fine-tune your machine to build more widgets. You need to find the constraint, solve it and then optimize and then start over again. At Hyundai we look at an asset that we can improve with time.... I bet you next year we will have figured out how to extract another 5% to 10% out of our plant in Alabama.

Q: If Hyundai models become more popular and inventories continue to shrink, do you risk getting into a shortage situation in which dealers start raising the price of the vehicle over your suggested prices? Would that hurt the "value" story you are pitching car shoppers, and is there a way to manage that?

A: Dealers are free to set any price they want for an individual car that they like. We have found that what our dealers are doing is selling their cars closer to MSRP [sticker price] than they have ever before. Just a few years ago more than 50% to 60% of Hyundais were sold with a rebate; now they are going for 1% to 3% discounts from MSRP. We have the lowest incentive [expense] in the entire industry. It is just $750, which is primarily support to our finance company to help it compete with the low interest rates offered by credit unions and commercial banks.

Hyundai's value position has never been higher than it has been right now. Our prices have never been higher and our discounts lower, but consumers have never given us as much credit for good value as they are today. They are happy even though they are not getting a $1,500 rebate.

And our dealers have been terrific so far.

Q: At what point does Hyundai start looking to expand its existing factories here or adding another plant?

A: Can't comment on that.

Q: How much planning goes on with Kia, Hyundai's corporate sibling? It is also having a great year. Sales are up 35%, and it has set an annual record. You share engines and transmissions. Is there other coordination?

A: At Hyundai Motor America, which is the sales and marketing arm, we share nothing with Kia. There is some common engineering on the production side, but that's not unlike some of the arrangements between Ford and Mazda in the past. They are separate companies with some common ownership, but there is no Hyundai-Kia company. You can buy stock in Hyundai. You can buy stock in Kia, but not in a combined company.

Q: Talk about the new Azera that you unveiled earlier at the Los Angeles Auto Show. Where does it fit in your lineup?

A: It will be the flagship of the front-wheel-drive Hyundai lineup. [Hyundai sells more expensive, luxury rear-wheel-drive sedans under the Genesis and Equus labels.]

It is well equipped, just two-trim strategy. The base car will have leather seating, a navigation system with a 7-inch screen, nine air bags, premium sound and automatic transmission. It comes with 3.3-liter direct-injection engine with 293 horsepower. The option package includes 19-inch wheels and a panoramic sunroof and other upgrades.

Q: There was a lot of skepticism when Hyundai launched the Equus. Could the company that once had a terrible reputation for reliability — which seems to be well in the past now — really pull off a $58,000-plus luxury car? So far, you have sold about 2,600. Is the project working?

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