The nearly-vacant Hyundai Motor showroom in the major city of Chongqing revealed the reason behind the store’s distressed manager. Even with discounting of 25% the dealership was selling hardly 100 vehicles a month; however, the nearby Nissan authorization was selling nearly 400 vehicles per month.
The lack of bigger, cheaper SUV models and a shortage of customers have resulted in poor sales stated the manger by the surname of Li. Hyundai’s huge $1 billion manufacturing plant only an hour’s drive away was inaugurated last year with the target production of 300,000 vehicles per year.
But then again with weak sales and the Chinese auto market declining rapidly, the factory is functioning at roughly 30% of its potential said two people with knowledge of the matter. Since the information is not yet public, the sources requested anonymity. The world’s 5th largest automaker—Hyundai—assured that it is closely cooperating with the local partner BAIC to give a new life to the Chinese business.
Hyundai’s distresses mark a key reversal for the automaker which is an early success story in the Chinese market as it rolled out popular new models into a surging market very quickly and cheaply.
in 2009, Hyundai and partner Kia’s collective sales ranked 3rd in China after General Motors and Volkswagen. Now the South Korean duo ranks 9th and its share market in China has more than halved to 4% last year, from more than 10% at the starting of this decade.
Industry experts and executives believe that Hyundai compromised its once monopoly in the segment to rapidly growing Chinese competitors such as BYD and Geely.
Squeezing Hyundai’s positioning as an inexpensive foreign brand, foreign contenders not only defended their ambit but also kept valuing competitive for mass-market models. In the world’s second-biggest auto market—the U.S.— Hyundai’s market share fell to 4% last year almost a decade low.
Hyundai’s business went downhill in the U.S. and China for same reasons: the company sought prices higher than its brand image could sway and it also missed the change in consumer tastes, particularly the rise in demand for SUVs.
In its statement to Reuters, the company said that it is attending to the problems in its vital Chinese and U.S. market by launching SUVs, revamping designs, and giving its regional units more independence to swiftly develop products custom-made to local tastes.
Wrong Products, Wrong Prices
The company’s Japanese rivals such as Honda—a role model for the Korean automaker—have also strived to keep up with the industry’s upcoming challenges like electric vehicles and self-driving cars. It was only last month that Hyundai posted a 68% drop in its third-quarter net reported its operating margin shrinking to 2.7% in the January-September period. After Germany’s BMW, Hyundai’s operating margin of 10.3% in 2011 was the industry’s highest.
According to U.S. market research firm Autodata Corp data, compared to GM’s 76% and the industry average of 63% Hyundai’s U.S. sales comprised of only 36% of the company’s SUVs.
Ed Kim, a Hyundai U.S. product manager between 2004-2008 who is currently serving as vice president for California-based auto consultancy Auto Pacific said, “One of our challenges back then, and I know it would continue to be a challenge, was that the management at (headquarters) was really big on sedans. (U.S.) product planning staff, marketing staff really wanted more truck products, more SUVs, but in so many cases, it was very difficult to convince management.”