Hyundai: New Korean CEO Should Alleviate Inventory Issues

LOS ANGELES – A new Korean CEO at Hyundai Motor America should help alleviate the automaker’s bulging inventory of cars in the U.S., says another new HMA official.

Brian Smith, HMA’s recently hired chief operating officer, says the addition of 35-year Hyundai executive Kyung Soo “Kenny” Lee is a way to lessen the days’ supply of cars on Hyundai U.S. dealer lots – and in some situations stored off-site – that are proving a hard sell to Americans enamored with CUVs.

“There’s a Korean CEO, which hasn’t happened in a long time,” Smith tells WardsAuto in a recent interview here. “And our Korean CEO is now very engaged with (Hyundai headquarters in) Seoul and has said, ‘(Reducing car inventory) is my No.1 focus,’ to get that fixed.

“That’s different than an American, as good as they are, in the past running the company,” Smith continues. “So that I think is a positive for us.”

For the past decade, the CEO role at HMA had been held by an American. Most recently Dave Zuchowski was HMA’s chief executive. He was pushed out late last year due to slowing car sales. Before Zuchowski, Waymo CEO John Krafcik headed HMA. He left the company in 2013 when parent Hyundai didn’t renew his contract.

WardsAuto inventory data shows Hyundai, including its Genesis luxury brand, had a 70 days’ supply of cars at the close of November, two days shy of the U.S. industry average days’ supply for cars, but up from 49 days in late November 2016.

In total, Hyundai ended November with 19.9% more vehicles in inventory than late November 2016, equating to a 68 days’ supply. That’s up from 52 days year-ago, but down from 72 in late October.

Again, despite that high level, Hyundai bested the industry average 71 days’ supply for U.S. light vehicles at the close of last month, as many brands – largely domestic and German – suffer from having too many cars when light trucks could account for 70% of light vehicles sold in December in the U.S.

One way automakers can reduce their inventory of cars is to not build as many.

A recent restructuring at Hyundai, expected to result in more responsibility for regional sales and marketing units, should limit the overabundance of cars, Smith says.

Hyundai’s Sonata midsize sedan, with a 114 days’ supply at the end of November, largely is assembled for U.S. customers at the automaker’s Montgomery, AL, plant. The HMA COO believes better communication between the U.S. sales-and-marketing side and Montgomery should lessen output of that model.

“My first meeting over in Korea, with the vice chairman, he expressed that,” Smith says. “He said, ‘I really want to push more decision-making out.’ We need to coordinate (manufacturing for demand levels) better.”

Bringing inventories, as well as incentives, back to more reasonable levels is a key goal of Smith, who arrived at HMA in October after a 30-plus-year career at Toyota in the U.S.

“Our days’ supply is higher…than any of us want, and I think the incentive levels as a result of that had to go up quicker than they should, and that’s had a negative impact on a lot of things,” he says. “It helps some product, but it’s not the best solution long-term.”

ALG data shows Hyundai, along with sister-brand Kia, had some of the highest incentives in the U.S. last month. Nevertheless, Hyundai’s U.S. sales fell 8.5% in November, while Kia’s tumbled 15.6%.

Aligning production with demand should also help Smith, who spent many years in the dealer and retail sectors at Lexus, achieve what he says is his No.1 goal at HMA: boosting dealers’ opinion of the brand. Doing so would increase Hyundai dealer profitability and restore dealers’ confidence, he reasons, noting Hyundai topped the National Automobile Dealers Assn. dealer attitude survey five years ago.

“That would be No.1 for me…focusing on building back strong communication, making (dealers) feel confident in everything we’re doing with the brand for the next five years, so they’re willing to invest more in their facilities and bring their best people in their organization to work at the Hyundai store.”

Between now and when all of HMA’s planned eight refreshed, redesigned or new CUVs arrive by 2020, Smith says incentive levels may have to stay high. However, he hopes improved marketing also can play a role in moving metal.

While lauding Hyundai’s most recent U.S. advertising, Smith says the brand isn’t perceived as highly as it should be.

“(Brand perception) has been flat. It’s not going down, but there’s been so many good things about the brand,” he says. “And you know quality just continues to go up and up and get recognized, and (on surveys by) J.D. Power the brand has stayed fairly flat. And I think that’s in spite of some great marketing. I’ve been a fan of the Hyundai marketing for years.”

Smith likes Hyundai’s current “better” tagline and wants to exploit it more going forward.  

“To me, ‘better’ works all the way through the organization. So I’m a big fan of that, and I think we need to figure out ways to leverage that more. We all can get up every morning and say, ‘What can we do better?’ Dealers, salespeople can do that. So it works.”

Another big job facing Smith is helping select 100 dealers to be Genesis standalone dealers, as Hyundai moves away from selling the newborn luxury brand’s cars in an area within Hyundai showrooms.

“We have a 6-month window here to figure out how to get this right. Where do the dealers need to be? In most markets I think we’re going to find great Hyundai dealers that want to be Genesis dealers. If we run into markets where there isn’t a Hyundai dealer that’s qualified or wants to be one, we’re going to have to go outside, but I think that will be relatively limited.”

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