By on November 27, 2013

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Speaking at a preview event for the next-generation Hyundai Genesis, Hyundai CEO John Krafcik defended his company’s decision to forgo establishing a seperate luxury channel for cars like the Genesis and Equus. While the rationale put forth usually revolves around the exorbitantly expensive pricetag for launching a new brand and an all-new sales network, Krafcik put it from another angle.

Speaking to Automotive News, Krafcik remarked

“I do believe that when the three premium Japanese brands were launched, it was during a certain time in the industry when there was a certain optimism about where the industry was headed,” he said.

“I really believe that if those three companies had a chance to really think about their path, they might have taken the path that we chose.”

The epoch that saw the launch of Infiniti, Acura and Lexus was the peak of Japan’s “bubble”, when Japanese automakers seemed to have limitless budgets for new vehicle R&D, marketing (think of those wacky home-market ads with Hollywood star endorsements) and sales channels (whether it was new luxury brands in America or multiple sales channels in Japan).

At the time, the rationale was that a Nissan President or Toyota Aristo was suitable for sale with a more plebian badge in Japan, but American consumers would not be willing to shell out premium car money for a luxury sedan sold alongside a Corolla or a Civic, no matter how good it was.

Nearly three decades on and Acura is largely confined to America and China, while Infiniti seems to be stuck in the mud as far as becoming a global luxury brand. Even Lexus, which has become a household name on par with BMW or Mercedes-Benz, hasn’t made any kind of dent in Europe. Do you agree with Krafcik’s assessment? Let us know in the comments.

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136 Comments on “QOTD: Better Off Mainstream?...”


  • avatar
    Pch101

    Thanks to Sloan, not many Americans will pay luxury car prices for sedans that don’t carry luxury badges. (They are more flexible when it comes to trucks and certain specialty cars, but not for normal passenger cars.)

    That isn’t necessarily true in other markets, but it is true in the US, and the US is a large enough market to dictate how the branding is managed. The Koreans aren’t going to change that.

    • 0 avatar
      thalter

      Agreed. 2 words – Volkswagen Phaeton.

    • 0 avatar
      Sammy B

      Agree 100%. In the US, Lexus/Acura/Infiniti got it right to have a dedicated dealer network and different badges/branding. I think the rest of the world doesn’t have the same issue.

    • 0 avatar
      28-Cars-Later

      Agreed.

    • 0 avatar
      VoGo

      Disagree. Chevy sells more Suburbans and Tahoes for $50K than Volvo, Infiniti and Acura sell combined.

      • 0 avatar
        Pch101

        “They are more flexible when it comes to trucks and certain specialty cars”

        The Hyundai Genesis is not a truck. The Suburban is not a luxury sedan.

        • 0 avatar
          fincar1

          To a lot of Americans a Tahoe or Suburban is a tall Cadillac.

          • 0 avatar
            Pch101

            For whatever reason, pickups have their reverse brand appeal — they’re more desirable without the luxury badge, a sort of reverse snobbery.

            For whatever reason, there are customers who will pay considerable money for a large SUV with a non-luxury badge. But unlike pickups, there are other buyers who will pay a premium for the luxury version.

            But sedan buyers expect the luxury badge if they are to spend that kind of money.

    • 0 avatar
      bd2

      Except, last year, the aged Genesis (which doesn’t have AWD) outsold the brand new Lexus GS, as well as the Infiniti M and Audi A6.

      With the new model getting AWD, the Genesis should double GS sales (if not more since GS sales tend to drop off a cliff).

      • 0 avatar
        Dan

        The aged Genesis also sells for around $29,000. Direct sales comparisons to actual luxury cars are a fool’s errand.

        • 0 avatar
          bd2

          No – the base Genesis starts around $36k and few buyers get the base model.

          Also, 30% of Genesis buyers opt for the R-Spec which is around $47k.

          One recent Genesis owner just switched to the Infiniti M (V6) b/c he couldn’t get the nos. to work on the R-Spec and probably would regret it anyway with the Genesis on the way.

          And let’s not forget, the original Lexus LS400 started at the low, low price of $35k – and it was still compared to the S Class even tho it was priced less than a loaded E Class (and the LS400 had the fancy badge and dealer network).

      • 0 avatar
        Maymar

        Are you completely sure of that though? GoodCarBadCar.net’s sales figures claims Hyundai doesn’t report the Genesis coupe and sedan’s sales figures as separate numbers. So they’re selling about 30k units a year of some Genesis, but there’s no differentiation between a ~$25k coupe and a ~$35k sedan.

        It’s hardly scientific, but Hyundai Canada posts the coupe and sedan numbers separately. The combined numbers at least hold up to the Canadian market being a tenth of the size of the US market (that is to say they’re averaging a little over 3000 Genesises a year). And at roughly 1000 Genesis sedans and 2000-2500 Genesis coupes per year, the Genesis sedan could very easily be moving only 10,000 units per year. At that point, it’s handily outsold by the Lexus ES, and at best, about on par with the GS and the A6.

        And if you move up to the Equus, it’s selling about 3500 units per year, less than half the more expensive Lexus LS. It’s not to say that Hyundai’s model won’t ever work, but it’s still struggling against a more established luxury brand.

        • 0 avatar
          bd2

          No. of sources that state that Hyundai sold just about 23k Genesis sedans in the US last year (yes, the sedan outsells the coupe by a large margin).

          And with the new Genesis getting AWD, Hyundai is looking to increase that no. to around 30k a year.

      • 0 avatar
        84Cressida

        Except, that the Genesis doesn’t compete with the GS, which is far more expensive, it competes more with the Avalon and the ES. And both of those cars mop the floor with the Genesis with lower incentives and fleet.

        But since you bring up this tired argument and seem to have an axe to grind over there at Hyundai HQ against the Camry and the GS, and since you love to drag the Camry into the mud over these figures, take note of the fact that the GS has a higher ATP, lower fleet sales (the GS has next to none), and less incentives than the Genesis. All the while offering superior driving dynamics, interior quality, styling, build quality and reliability.

        • 0 avatar
          bd2

          Actually, the tired argument is that the LS400 was priced at $35k which was less than a loaded E Class, much less the S Class.

          So you are saying that the LS400 wasn’t an S Class competitor? – When Toyota/Lexus clearly thought that it was.

          So those sorts of comparisons applies to Toyota/Lexus (despite the price differential) and not Hyundai (and Hyundai can’t charge for what it doesn’t offer – a luxury badge and separate dealer network).

          And even with the current LS460 – it’s CLOSER in price to the Equus than it is to the S Class.

          • 0 avatar
            Dave M.

            Wasn’t it that by the 3rd year of production the LS not only outsold the S class and 7 series that both BMW and MB went back to the drawing table to figure how to confront the newbie.

          • 0 avatar
            84Cressida

            You’re the tool who continues to try to compare the Genesis to the GS, nevermind the fact that the GS and Genesis are far different types of cars. The LS and S class are similar full-size comfort cars.

            You also conveniently forget that the LS jumped in price substantially by its 3rd year on the market. Funny how that slipped your mind.

            And if the LS only sells because of its value proposition, then what’s Hyundai’s excuse for the Equus being a complete and utter failure? HEY! Since you love the GS so much, you’ll love the fact that since the GS and Equus are comparable in price, they are now competitors according to your rules and…

            wait.

            would you look at that?

            The GS slaughters the Equus in sales.

            Funny how that slipped you guys by. Just like those pesky EPA rules, right?

  • avatar
    npaladin2000

    America and Americans have typically defined a luxury car as much by the dealer experience as by the car itself. Perhaps even more so in some cases. So while the Genesis and Equus are fine cars, and can hold their own against any luxury nameplate, and win any magazine comparison maybe, shoppers will disqualify it because of the Hyundai dealer experience, which is subpar even for a mainstream automaker in my experience.

  • avatar
    callisall

    Hyundai really should’ve bought Jaguar/LR. What Jaguar needed most was cash and independence. What Hyundai needed most was pedigree, design flair and getting rid of the white box car image.

  • avatar
    jmo

    It could work if the goal is to sell to the market that bought Buicks in 1959 and Volvos in 1989. The upper-middle class who wants a nice car, but not too nice.

    That said, I don’t know if the same pressure exists on people to buy cars more modest than they could otherwise afford.

  • avatar
    PrincipalDan

    Perhaps the creation of the luxury brands in the 90s was the correct path back then and perhaps Hyundai’s choice is the right choice now?

    Didn’t high trim level Fords eliminate the need for Mercury? Heck if the govt. had their way during the GM Bankruptcy we would be down to Chevy and Cadillac. Obviously even the govt thinks that loaded Chevys make Buicks largely redundant.

    • 0 avatar
      Lorenzo

      I don’t know that high trim level Fords eliminated the need for Mercury, PrincipalDan. GM sold essentially the same car in the ’50s, with three trim levels for Chevrolet, with different names for the models. But There were Oldsmobiles and Pontiacs available that were also essentially the same car but with enough sheet metal differences to seem like different models.

      Ford just got lazy and did nothing more than change the grille and tail lights of Fords and called them Mercury. If Hyundai uses trim levels and enough sheet metal differences to cover a range of offerings with economies of scale, they’ll do well. Of course, GM’s Cadillac had it’s own platform, and Buick used it with more conservative styling, not the lower priced Chevrolet/Olds/Pontiac platform.

      Hyundai would do well to emulate old GM for its top-of-the-line Genesis and Equus. Obviously, I don’t think the market has changed enough for the old GM system to be obsolete, GM just did what Ford did, first, with cheap badge engineering instead of defining models with different sheet metal. After all, a tufted leather sofa looks richer, and fetches a much higher price, than the same sofa with tuck and roll Herculon.

      • 0 avatar
        npaladin2000

        “There were Oldsmobiles and Pontiacs available that were also essentially the same car but with enough sheet metal differences to seem like different models.”

        Says no one but you and GM. :)

        • 0 avatar
          Lorenzo

          Heh. I think there a few old auto body guys on my side. Check the specs for a ’57 Chevy Bel Air, ’57 Pontiac Chief, and ’57 Olds 88. Check the pictures online too. You can unbolt the fenders, bumper, grille and hood from the Bel Air and put them on either the Olds or Pontiac – the holes will line up. Many other parts are interchangeable too, especially the chassis and drivetrains.

          It’s much more obvious with the ’49-52 models, visually you can see it’s the same base car with variations in the fenders, bumpers, grilles and hood/trunklid, and with holes for the headlights, tail lights, door handles and other hardware in exactly the same configuration. By the late ’50s they did a much better job of hiding the commonality with more distinctive sheet metal.

          The badge engineering came in during the early ’60s, with GM using the same compact car base for the Olds F85, Buick Special and Pontiac Tempest. They included a small Buick instead of Chevrolet because of the Corvair, but needed a compact for people who wanted a conventional RWD compact, so they came up with the boxy Chevy II for 1961 to compete with Falcon, and that was a quickie design-to-build, the fastest GM has ever moved.

    • 0 avatar

      I would not rely too much on Government advice or thinking. Check Obamacare debacle.

  • avatar
    ash78

    America has so much socioeconomic mobility — among the most in the world — that one of the only ways we can “define” ourselves are through our consumer choices. And that means brands, brands, and more brands. Further, we’re such a melting pot of a nation, we try really hard to cling to an innate human sense of tribalism through our sports teams, our cars, and so on.

    It’s not like our neighbors are like “Hey, can you believe Vimal Jones just bought a Lexus? For an Untouchable, he sure must make a fortune supplicating on the streets of Kolkata. And he just bought some carbon fiber kneepads last month. Lucky bastard.”

    • 0 avatar
      jmo

      “America has so much socioeconomic mobility — among the most in the world”

      That was once true but hasn’t been for a while.

      http://en.wikipedia.org/wiki/File:The_Great_Gatsby_Curve.png

      • 0 avatar
        28-Cars-Later

        I agree, and even when it was true going from true pauper to prince still had odds similar to winning the lottery.

        • 0 avatar
          thelaine

          It was the comfortable middle-class life, not riches, that was goal, and it was attainable for many of those who wanted it badly enough to work for it. Not so much anymore.

          • 0 avatar
            28-Cars-Later

            I’ll agree to this.

          • 0 avatar

            Why, you can get welfare and food stamps if you try hard enough. It is an American dream v.2.1.

          • 0 avatar

            I actually met immigrants from Cambodia who came here exactly for that reason.

          • 0 avatar
            thelaine

            Who can blame them? Everyone is in line, whether business or individual. When the immigrants get their citizenship, who do you think they will vote for? The voters choose the politicians who favor the takers and the influence-peddlers. Just pay the bills with borrowed money and let the next generation worry about it. They will undoubtedly vote for the next charismatic con man who comes along, promising more free stuff.

          • 0 avatar
            tonycd

            thelaine, I agree that the middle-class life used to be the goal, and I agree it’s not as attainable as it once was.

            I don’t agree with the implication — I hope I’m not reading it correctly — that today’s immigrants are “takers” whose votes can be bought, as Mitt Romney suggested, by the highest bidder in social welfare giveaways. If social welfare giveaways were enough to make people stay in this country, we wouldn’t have CEOs exporting all our businesses… which, after all, are people too.

            Seriously, the hardest-working people I know aren’t Americans, they’re illegal aliens. They do the nastiest work, in the largest quantities, for the least money, with no legal protections, and with no complaints. If these people stick it out to achieve citizenship and then expect their fellow citizens to offer them the same level of mutual protections that prevail in every other First World nation, I have no complaints with them. And if the richest people in the country agree to pay more taxes for a more just and humane America, I’m willing to pay them too.

  • avatar
    dmw

    The issue is not whether Americans won’t buy a luxury brand. It’s what the Hyundai brand means in America. Honda and Nissan used to be downmarket, but they were never purveyors of crap, at least not since the 60s. The Hyundai Excel my Dad had when I was a kid was the worst car ever made–worse than the 1980 Chevette we had that went through head-gaskets on a lunar cycle and whose rubber door seals and synthetic roof header were put on with Elmer’s school glue, worse than the subsequent Lincoln MkVII trophy car he got that had an air suspension apparently made out of paper bags and drinking straws. I know, as with similar old testament axioms, it’s wrong to visit the sins of the Excel upon the Genesis. But the word Hyundai is seared into some deep part of my brain, associated with the image of billowing blue smoke. I can hold my hand up freely and admit that I would be much more likely to get into a Genesis if it did not have the word “Hyundai” on it. I’m not “proud” of that, but I think I’m in good company.

    • 0 avatar
      jeffzekas

      My daughter bought one of the first Hyundai: after the transmission blew up at 50,000 miles, my impression was formed (and the fact that you couldn’t get a used tranny at the junk yard, cos EVERY OTHER Hyundai owner was looking for one!).

    • 0 avatar
      CoreyDL

      Additionally, it’s not like 1986 was the most recent time they made a bad car. That would be in 2004+ or so, with the horrible Elantra hatch. Japanese brands haven’t made horrible items since the 60′s, and there were lots of other people making bad things then.

      How many brands made bad stuff in 2004? Much shorter list.

  • avatar
    velvet fog

    I seem to remember the creation of luxury Japanese brands as also being driven by import quotas. So in order to import more vehicles, the Japanese manufacturers needed to create new brands.

    I’ve also heard Lexus broken down as Luxury EXports for United States.

    This could also be complete crap and a figment of my aging memory too.

    • 0 avatar
      jmo

      They didn’t need to create new brands. What the quotas did was encourage them to export more expensive, higher margin cars.

      They could have exported Toyota Century and Nissan Presidents but they figured that wasn’t ideal.

      http://www.amazon.com/Lexus-Relentless-Pursuit-Chester-Dawson/dp/0470828048

      Great book on the subject if you’re interested.

    • 0 avatar
      Pch101

      The “voluntary quotas” were an overall cap on Japanese imports, and weren’t brand specific.

      They did motivate the Japanese to create the luxury brands, because they wanted to squeeze more margin out of what they were exporting. It also motivated them to build plants in the US.

    • 0 avatar
      dmw

      Yes, the VRAs was basically the big three punching themselves in the face to hurt Japan. It’s a classic case of how protectionist policies can backfire when you do not invest in becoming competitive. Japan sold fewer cars and made a mint. In fact, I believe that the VRAs were followed by an antidumping case on Japanese luxury cars, which obvioulsy did not save Buick/Lincoln/Cadillac/etc from a long ugly blue period.

  • avatar
    Lightspeed

    A Lexus driver agrees. These are different times, but also, I think Hyundai can use the Genesis as an effective ‘halo’ car for the rest of the line. Splitting Genesis off only muddies thier message.

  • avatar
    jacob_coulter

    We can argue all day whether or not Americans should be label whores, but if you’re goal is to sell cars, it’s best to view the world as it really is.

    It was an incredibly savvy move by the Japanese, and my bet is Hyundai will never have the same big success with their premium offerings as long as their main source of revenue is affordable cars. It won’t be a failure. but I don’t see it ever becoming something like Lexus.

    Americans would have shunned $40,000 Toyota sedans in late eighties/early nineties, even though the original LS was a home run.

    Seiko makes a premium watch that’s about the same price as many Rolex models. You can debate all day which is the better engineered product or offers more value, but 99% of Americans would buy the Rolex because Seiko makes $40 watches and Rolex doesn’t.

    • 0 avatar
      bd2

      Infiniti long ago killed off the Q flagship, M sales are anemic and Ghosn thought about doing away with Infiniti altogether.

      Akio Toyoda wanted to cancel the GS but was talked out of it (but Toyota still cancelled the V8 GS) and the bulk of Lexus sales is comprised of the cheaper FWD ES and RX.

      Acura is struggling to sell its sedans.

      And inaccurate analogy.

      The Genesis and Equus are built comparable to the RWD Japanese – they just don’t carry the cost of a separate brand and dealer network.

      And oh, the Genesis (even w/o AWD) outsells the Lexus GS and Infiniti M.

      • 0 avatar
        jacob_coulter

        Toyota created Lexus to compete with Mercedes, and it has outsold them in the US for too many years to count. How do you not call that a smashing success? Lexus is the top-selling luxury brand in the US. You really have to move some goalposts to say they didn’t succeed.

        All of the Japanese luxury offerings are recognizable brands, and every one of them easily outsells Hyundai’s luxury offerings.

        Any bets on when Hyundai’s Genesis or Equus outsells Lexus, Infiniti, or Acura’s lineup?

        Already the Equus is on life support, moving around 250 cars a month in the US and Genesis sales have not met Hyundai’s goals. Compare Genesis sales to say a Lexus ES. Just one Lexus model outsells all of Hyundai’s luxury offerings combined in the US by almost double. the Infiniti G series also nearly double.

        Do I think the Japanese luxury divisions have made mistakes? Definitely (especially Acura) but they still move a lot of cars and all of them found incredible success at one time or another.

        It was a very savvy move to create separate brands.

        • 0 avatar
          bd2

          How many of the more expensive RWD sedans does Lexus sell?

          How many of the cheaper FWD models does Lexus sell?

          Lexus sales have increasingly been reliant on its FWD models and will only increase with the new RAV-4 based CUV.

      • 0 avatar
        84Cressida

        Sigh. I know you love to trot this out all the time and get proven wrong over and over, but you really need to get a new hobby (Did a GS run your dog over once upon a time?) Akio Toyoda, I repeat, DID NOT want to cancel the GS. The comments you are referring to are what he said at the GS launch at Concours D’ Elegance in 2011, and he did not say he wanted to cancel the GS, he said he did not like where the engineering was going for the GS when it was in development as he thought it was too soft and not inspiring enough to drive. He pushed the engineers to make the car more engaging to drive until he was satisfied with it.

        Thanks to that effort, the GS and its IS platform mate have been getting rave reviews for their driving dynamics and have beat the Germans in several magazine comparisons.

        • 0 avatar
          bd2

          Oh really?

          From a Mark Rechtin Automotive News article -

          Eighteen months ago, Toyota had all but scrapped its plans for the redesigned Lexus GS 350 sedan that was unveiled in Monterey, Calif., last week.

          Toyota Motor Corp. President Akio Toyoda had put the GS on the CHOPPING BLOCK, but a last-ditch effort from U.S. and European executives SAVED the car. In the process, the company overhauled the way Lexus executives report to top management in Japan–giving the luxury brand a stronger voice at the highest levels of the company.

          “I DIDN’T WANT THIS CAR,” TOYODA said at the debut of the GS, which goes on sale in early 2012. But Lexus’ regional management teams “FOUGHT me like crazy.”

          Several top Toyota executives confirmed that the 2013 GS redesign had been as good as DEAD.

          “There were some executives, including AKIO, who thought, in terms of our priority list, that the GS should be delayed or CANCELED,” said Andrew Coetzee, now U.S. vice president of Lexus Brand Development. He was a Lexus product planner in Japan at the time.

          Coetzee says Toyoda’s pessimism resulted from the many layers of Japanese executives through which Lexus’ overseas managers reported. Only when Lexus’ global team members appealed directly to Toyoda did the boss CHANGE his mind.

          Read more: http://www.autoweek.com/article/20110822/carnews/110829972#ixzz2luVIy06t
          Follow us: @AutoweekUSA on Twitter | AutoweekUSA on Facebook

          - So now, you are going to deny quotes from Toyota brass and Akio, himself?

    • 0 avatar
      jeffzekas

      +1

  • avatar
    Zackman

    Lexus, Infiniti, Acura: Ho-hum. The only one that makes any impression on me would be Lexus, but I’d still never buy one, as I’m not a “luxury” car guy. Besides, the OEMs add enough goodies on their regular cars now to negate any reason to buy the higher-priced offerings.

    So, why buy luxury? Hmmm… I suppose if you MUST have real wood trim?

    • 0 avatar
      jmo

      “So, why buy luxury?”

      Much better ride quality and overall NVH?

    • 0 avatar
      TMA1

      Real wood trim? Even the luxury makes are starting to skimp on that – I’m thinking of Acura’s “flagship”, the RLX.

    • 0 avatar
      jacob_coulter

      I buy them for a multitude of reason, the better ride quality, noise isolation, higher quality materials, fit and finish, etc.

      Also, I like large sedans over SUVs, and most non-luxury brands have abandoned this market. I drive a Lexus LS430, and getting a really large sedan with rear wheel drive and V8 is rare. Even better, the car feels like it’s carved from granite, with over 100k miles, it feels tighter than most new cars.

      I personally don’t like many gadgets (first thing to break) and I doubt a 10 year old Lexus with over 100k miles really impresses many people. It’s worth less than just about any new econobox.

      • 0 avatar
        Preludacris

        Though neither 10 year old luxury nor a new econobox is an impressive thing, I find the former far more appealing.

        Maybe it’s driven by the original owner, who now has it paid off and continues to enjoy the quietness, build quality etc. This type of owner is too intelligent to waste more money on another new car just for the sake of newness.

        Or, it’s driven by someone who bought it from the first owner, likely in cash, and is now enjoying a quiet well-built car for less than the cost of a new econobox. This owner is smart because he’s not paying interest, and he’s not driving a brightly colored billboard advertising his low biweekly payments.

        Brand new econobox? That’s the particularly unpleasant corner of the Venn diagram where mechanical ineptitude meets poverty.

        • 0 avatar
          Morgan

          Bingo.

          I was recently considering a new car to replace my still-in-good-shape, but now old enough to need some downtime for maintenance/repair 13 year old car.

          I decided a much less expensive second car (I’ve got garage space) would be a better alternative, and I could get something different and fun.

          So instead of a new Mazda3 I got a quite nice old LS400, and kept my other car as a daily driver.

          • 0 avatar
            PrincipalDan

            I understand the mentality. I’ll be sedan shopping within the next year and I too am seeing the value paradigm of “solid large car with former elderly owner”. If you can pay cash or have a good relationship with your bank/credit union the lower monthly payment can buy quite a bit of gasoline for that V8 vs. the higher car payment and better fuel economy of an econo-box.

        • 0 avatar
          iNeon

          “Brand new econobox? That’s the particularly unpleasant corner of the Venn diagram where mechanical ineptitude meets poverty.”

          People that finance/drive 2006 BMWs– in 2013– pinch more pennies than the bluehairs in 2006 Buicks. One group of these people knows their place. It isn’t the BMW owners.

        • 0 avatar
          CoreyDL

          Gosh you’re so right. I could have a new, lightly-optioned small Kia, or a 4 year old mid-large AWD luxury car. I paid in cash.

          Bet the insurance isn’t much different either.

  • avatar
    racer-esq.

    Hyundai and Kia are not wholly owned subsidiaries of the same company. A lot of times they are at odds, and one is not going to cede any market to the other. If Hyundai gets a luxury brand then Kia gets one also. And that is too many luxury brands to introduce. Especially with the Germans going downmarket chasing volume, and every other “luxury” brand desparately trying to find an identity. Outside of the Germans Lexus, Cadillac, Jaguar and Infiniti at least have unique platforms, everyone else is just rebadging higher optioned mainstream brand cars.

  • avatar
    JD321

    Honda is selling a ton of Accord Touring models to former “luxury” buyers. Intense global market competition is forcing better quality at the low end of the market making so-called “Luxury” brands just…umm…expensive. “Branding” is a primitive idea pushed upon the masses by controlled mainstream media and Madison Ave. The internet is obsoleting that obnoxious “Branding” sociopathy.

    • 0 avatar
      thornmark

      There’s much to what you say. While marketers target areas to increase margins, the savvy and better educated are more likely to see through that.

      In Germany it was thought that the wealthy would shun Aldi’s markets, they did not – they saw value. I rented the current Genesis and would buy that over the new Impala.

      Chevy Impala or Hyundai Genesis, the latter is the value proposition.

      • 0 avatar
        jmo

        “I rented the current Genesis and would buy that over the new Impala.”

        I recently rented both and totally agree. The Genesis sedan has a very premium feel in terms of ride, solidity, driving dynamics, etc.

        The Impala is a great car. But,much like the Avalon, it feels like a big version of a mass market sedan.

      • 0 avatar
        dmw

        Funny, it was in an Aldi in Hamburg that I first saw bags of bread on store shelves that had been sampled by mice. I shopped there because I was a broke student. Didn’t see too many bankers and footballers in there looking for 1-euro liters of OJ with a sell-by date of tomorrow. Germans are just as vain as we are, and pay money for brand—they just like to de-badge their fancy cars and avoid talking about their home prices etc. because being a show-off is not looked upon fondly.

        • 0 avatar
          thornmark

          The owner of Aldi’s is the richest man in Germany and their stores are renown for value and cleanliness. The wealthy do shop there.

          Here Trader Joe’s is Aldi owned and uses many of the Aldi concepts for delivering a superior experience w/o being overpriced. It is regularly cited as the best food chain in the US.

          • 0 avatar
            Pch101

            There are two Aldis, Aldi Nord and Aldi Sud. They are separate companies, with one brother owning the Nord chain and the other owning Sud.

            Trader Joe’s is owned by Aldi Nord. The Aldi stores in the US are Aldi Sud. Both Aldis have stores in Germany, but in the rest of Europe, the brothers don’t compete directly against each other.

          • 0 avatar
            RobertRyan

            “There are two Aldis, Aldi Nord and Aldi Sud. They are separate companies, with one brother owning the Nord chain and the other owning Sud.”

            In Austria they change the name to Hofer.

          • 0 avatar
            Zackman

            “Three-buck-Chuck” for the win!

  • avatar
    Brian E

    The success of Hyundai’s strategy depends on the Genesis brand, but I’m not sure whether it will have the intended halo effect on the rest of the Hyundai lineup. Does the buyer of a $20K Sonata really care whether there’s a $55K luxury sedan on the showroom floor, or is it just another reminder that you really can’t afford a nice car? A lot has been made about whether luxury buyers want separate showrooms, but maybe mainstream buyers do too. It’s one thing for the higher cost models sharing floor space to be specialty models – SUVs and sports cars – where the cost difference is easy to rationalize. It’s another thing to have a fundamentally better “luxury” model in the same market space on the floor.

    • 0 avatar
      npaladin2000

      It’s all going to depend on which has the greater effect on the other. Will Hyundai’s dealership experience drag down the higher end models, or will the higher end models force Hyundai dealers to up their game as far as dealership experience?

      • 0 avatar
        Featherston

        I’ve never dealt with a Hyundai dealership, but you raise a good point vis-a-vis the dealership experience. Enthusiasts rip the Lexus ES as an overpriced alternative to the Camry or the Avalon, but I think they’re ignoring the dealership experience. My local Lexus dealer skews a little bit smarmy, but they’re essentially honest and focused on customer service. My local Toyota dealer is sleazy and dishonest.

    • 0 avatar
      jmo

      I don’t know. The dealerships around here might be Mercedes, Toyota, Honda, BMW all on the same lot, you walk through BMW to get from Honda to Toyota, all the cars parked in the same general area, etc.

      • 0 avatar
        Kyree S. Williams

        We have a Hyundai dealership right next to a BMW/MINI dealership. That Hyundai dealership happens to have a horrible service department, but it is the only one close to my house. But I’m told that Kia dealerships will service Hyundai cars under warranty, so that’s where the Sonata may go the next time it needs service or a repair…

    • 0 avatar
      jacob_coulter

      I do very little business at dealerships, but there is definitely a difference between the service department at say a Toyota dealership and a Lexus one, or a Nissan and Infiniti dealership.

      If I was a new car buyer/leaser, I’m obviously going to be at the dealership for all my service, so it’s definitely part of the equation and I personally think it will cost Hyundai sales.

  • avatar
    28-Cars-Later

    I think Lexus was coming out regardless of the market conditions in North America in the 80s, but I argue Acura only exists because of the incredible poor quality of [most] American luxury models in the same period. Infiniti may or may not have been introduced into North America, it seems like it would have been given it launched with the LS400 fighter Q45, IIRC.

  • avatar
    kmoney

    “Nearly three decades on and Acura is largely confined to America and China, while Infiniti seems to be stuck in the mud as far as becoming a global luxury brand”

    I think a big part of this is that these two companys also make considerably worse cars than Lexus. Acura is stuck using ill suited front wheel drive powertrains with 6 cylinders plucked straight from the Honda lineup. Infiniti cars have good driving dynamics, but they just look cheap (especially the interiors) compared to others in their class. I get that these cars cost less than their counterparts, but they seem to have swung the pendulum too far toward value and away from quality.

    I’ve never driven an Equus, but I’ve sat in one and looked several over up close, and they seem to at least exude the quality of a well made luxury car. My daily driver is an LS460 (which Hyundai likely benchmarked) and the quality is definetly worse, but still good enough that your left impressed with it as a worthy effort more than a cheap knockoff.

    2013 brings much more educated consumers who have more resources to suss out value than those in 1989. I think if Hyundai offer a solid product at a slightly undercutting price they could at least get off the ground. The japanese cars were never about status seekers. They were meant to appeal to self-made people who wanted value for their dollar.

    • 0 avatar
      bd2

      The interior of the Infiniti M is quite nice, much better than the previous Lexus GS and still as good, if not better than the current GS.

      As for FWD powertrains – that’s mostly what Lexus sells in the ES and RX and will continue to increase with the upcoming RAV-4 based CUV.

      • 0 avatar
        84Cressida

        Pretty much all of Audi is FWD based and most of BMW is cheap ass 3 series with vinyl seats leases. The next 1 series will be FWD. Yeah, real luxury. Mercedes is seeing huge gains thanks to the FWD CLA, a car that’s been getting luke warm reception from the press.

        Lexus is far from the only FWD luxury game in town. You also conveniently forget that the IS is Lexus’ 2nd best selling sedan and is seeing huge gains, the RC, which is based off the GS will be joining the lineup, the GS-F and new IS-F are on the way, and the LF-LC concept will be the next SC. Meanwhile the LS sells in comparable numbers to its rivals and outsells the far cheaper Equus. Oooops.

        As for the M vs. GS, the M is nice, but nowhere near as nice as the 4GS, where the interior has been universally praised and has even won Ward’s 10 best award for interiors.

        • 0 avatar
          bd2

          Having a SUB-COMPACT be FWD is hardly the same as having a MID-size (actually a full-size now that the ES is built off the Avalon platform).

          And BMW, MB and even Audi now all have ATPs that are far higher than that for Lexus – and that’s even despite the oodles of 3 Series that BMW sells.

          And who cares if the IS is up big percentage-wise?

          That’s what happens when sales are low – sales of the previous IS would even dip below 2k a month (would never see the 3 Series get that low) and the new IS can barely even do around HALF of 3 Series sales.

          Also, 85-90% of IS sales is for the base (and slow) IS250.

          Sales of the GS was up big percentage-wise against its predecessor last year, but that’s b/c it’s predecessor was doing a measly 200-400 a month in sales.

          The high %-increase still doesn’t change the fact that the new GS is selling WORSE than its predecessor at the same time of its life cycle.

          3G GS sold 33.5k in its 1st year.
          4G GS sold 22.2k in its 1st year.

          That’s a HEFTY % DECREASE.

          • 0 avatar
            84Cressida

            What difference does it make what size the car is? You’re making up your own little rules as you go.

            The ES has always been Lexus’ entry level car until the CT showed up. Your defense of Mercedes for selling CLA (which is not a sub-compact and is larger than the C-class in some dimensions) but ripping on Lexus for the ES just shows what kind of shill you are.

            You then repeatedly mention that Lexus will have the NX, and trash that for being FWD, but refuse to acknowledge they’re launching a RWD coupe, IS-F, GS-F, and SC in the future, all of which are RWD and share nothing with Toyotas. And Mercedes just unveiled the GLA, based off the CLA, which is…wait for it…FRONT WHEEL DRIVE. Eat it, Agnes.

            The 2IS was on its 8th year in the market and was still selling respectable numbers, and just because it and the GS do not outsell the 3 and 5 series does not make them a failure. Not to mention that the IS (and GS) do not offer coupes. But since you seem to think that they’re failures, I guess since your beloved Optima and Sonata fail to outsell the Camry on retail, guess those cars are failures too.

            2005 was a far different time than 2013, in case you’ve been under a Hyundai emblazoned rock.

        • 0 avatar
          Dave M.

          Let me know when the IS matches the 3 series driving dynamics. Hasn’t happened yet.

          The base model 3 series is a great entry point to the BMW driving experience. The 1 series looks interesting too.

          It’s going to take a long time for Lexus to get people to look at them as anything more than competent luxury.

          • 0 avatar
            Sam P

            “Let me know when the IS matches the 3 series driving dynamics”

            Sure, ever since the 2014 (3rd generation) IS was introduced.

            Source: http://www.caranddriver.com/comparisons/habemus-papem-2013-bmw-335i-m-sport-vs-2013-cadillac-ats-36-2014-lexus-is350-f-sport-comparison-test

            ” Turn-in is crisper in the Lexus than in either the BMW or the Cadillac, a fact borne out by its first-place slalom finish…

            “the Lexus is utterly imperturbable. Bumps that send other cars skittering off-line or scrambling to maintain their course are absorbed and dispatched, but not kept completely hidden from the driver.”

            “With the F30, BMW wavered. This is the first 3-series that feels less thoroughly engineered than its competition. It’s competent, it’s spacious, it’s comfortable; but in comparison with other cars in its segment, the 3-series is undercooked.”

            “Bumps that the Lexus absorbs and the Cadillac shrugs off with a single succinct compression and rebound make the BMW pitch and roll and fight to stay on-line. Compared with the other two cars here, the BMW feels immense and slow-witted.”

  • avatar
    1998redwagon

    what surprised me about the japanese launch of upmarket brands was the fact that they were for the most part physically linked to a toyota dealership. you drove to the toyota dealership and parked in front of the lexus building. that actually worked for them. they actually made a killing selling upscale. although to be quite fair not every toyota dealership was able to obtain a lexus franchise. only the largest and those with the physical footprint to have the lexus box building.

    volkswagen attempted to sell an expensive car with the same badging as a golf in the same room.

    i think it is harder to sell an upscale/upmarket car when cheaper alternatives are literally feet away.

  • avatar
    agzand

    It might work as long as there is an incentive to make up for pedestrian badge. If Hyundai sells a 5-series competitor at 3-series price, they will have a sub-group of shoppers who are not image-conscious. But they can forget about competing with luxury badges on equal terms and catering to younger professional shoppers.

    Usually it goes like this:
    - So what kind of ride you have?

    - Oh I have a little BMW.

    Or:

    - I have a Hyundai Genesis.

    90% of general public associate the little BMW with someone who is well off, and Hyundai Genesis with someone who is concerned with lower monthly payments, although the Hyundai might be the more expensive car.

  • avatar
    motormouth

    The Japanese OEMs were selling individual model ranges through dedicated dealers in Japan years before they launched Acura, Infiniti and Lexus in the US. I reckon the idea was these ‘new’ brands would do well in a similar set up, where a ‘premium’ customer would appreciate getting a latte instead of a standard coffee-two-sugars sludge.

    Apart from Lexus, which has spent billions on creating a standalone brand that has better managed to separate itself from the poor Toyota relations, the veneer of premium in this sense has worn pretty thin and many customers are simply not prepared to pay extra cash for the latte and a highly-specified version of a vehicle that over the other side of the dealership is considerably cheaper.

    Many Japanese ideas don’t export well and having a different dealer experience for different vehicles is just another idea that Honda and Nissan would gladly drop to save the stupid amounts of money it must cost to keep these brands going. I think the local success of the Japanese set up and the excess of the time combined to push each of these OEMs to create new sub-brands but times have moved on and I can’t help but think that Krafcik is spot on in not wanting to set up an equivalent with Hyundai.

    If you don’t want a Hyundai now, I doubt you’d want one with a fancy badge and a fancy price. The time of the premium sub-brand has come and gone.

  • avatar
    smartascii

    There was a time when buying a luxury car got you more more equipment and features, but also better build quality and a certain intangible solidity or driving experience missing from the “lower” brands. This is increasingly untrue. The domestics’ interior quality and general fit/finish are exponentially better at a time when the top-tier brands have discovered cost-cutting. (As an aside, I set out to buy a new car last month, but wound up with a CPO 2011 3-series that puts the current model to shame.)

    Japanese manufacturers currently have a very small quality gap between their aspirational and pedestrian brands, too, leaving the difference between an Avalon and a ES350 essentially nothing more than trim, styling, and branding.

    A Genesis or Equus certainly feels more upmarket than the BMW/Infiniti/Acura competition, and doesn’t really give up all that much to Mercedes of the New-CLA-Order.

    The economic recession has left many of us thinking that a badge isn’t really worth anything by itself, and the product it’s glued to better be worth the asking price.

  • avatar
    Christian Gulliksen

    Unless I missed it, no one has mentioned the Mazda Millenia — originally intended to be part of a premium brand that never materialized. Back then, the badge really mattered, at least in Southern California, and a Mazda simply wasn’t premium. Like the 929, it was seen as a near-premium Cressida or Maxima.

    I knew several people who traded in luxury sedans (primarily Jaguar XJ6s) on the Lexus LS 400 as soon as it hit the market. They’d never have done that for a Toyota LS 400.

    It’s a bit different today. And I think Hyundai and Kia have an advantage in Southern California with a sizable Korean population who buy high-end Korean cars. The more you see them in Hancock Park or Newport Beach, the more we’re conditioned to think of them as cars that belong in Hancock Park or Newport Beach. I’ve noticed my attitude changing when I see one in a parking lot.

    Anyway, I think premium branding was essential in 1990, but today…not so much.

  • avatar
    Hillman

    In my view there there are only 3 different types of luxury buyers. 1. those who want to impress others with a badge and they don’t care what that is as long as it is know for being really expensive. 2. Those who want the best bang for the buck and don’t care at all about the badge. 3. Those who want a luxury car but don’t want to be seen flaunting wealth. Lexus was smart going after buyers 2 and 3 and Hyundai should do the same.

    • 0 avatar
      Kyree S. Williams

      I think it’s fine for Hyundai to go after people who want flashy cars, but Hyundai’s cars are flashy in the wrong ways. Hyundai’s luxury designs rely on a lot of chrome and would, in fact, look very mainstream and boring without it.

  • avatar
    Kyree S. Williams

    Here’s my take. A separate luxury brand has something to do with a car’s desirability, but it isn’t everything. The fact that Hyundai is choosing to sell its cars under a mainstream brand, though, means that those cars *really* need to excel. First of all, when Toyota, Honda and Nissan debuted their respective luxury brands, the companies already had reputations for excellently-built products. Hyundai/Kia still has a massive hurdle to overcome for peddling years of second or third-tier products, even though they make excellent and fully-competitive products today…and this reputation is doubly-crippling when the cars are sold under the Hyundai and Kia brands instead of separate luxury brands. Second of all, a luxury car under a mainstream brand really needs to impress, to set design standards rather than copy them. Both the Genesis and the Equus look anonymous and derivative. Between the two of them, they don’t even have a consistent school of design and without the badges, you’d be hard-pressed to tell that they are related. And with the Equus, in particular, there are all sorts of lovely features and gadgets, but when you step into a BMW, Audi, Mercedes-Benz or even a lower-tier Cadillac, you will notice how much better-looking the aesthetic is. Hyundai doesn’t seem to have learned its lesson with the upcoming Genesis, which will look just as dated in five or six years as the current one does now. I think that if Hyundai wants to play this game, the company really needs to step up so that its products don’t look like the equivalent of selling luxury watches at Walmart. I’m talking about aesthetics here; I’m sure the Equus and Genesis are at least *as* solid as what the luxury brands are selling. But I know for a fact that the person who can afford the almost-$50K Genesis R-Spec sedan will instead step-down into a mid-grade 328i, because of the design and the distinctiveness. I figure that they’ll have this all sorted out by the time the next Genesis rolls around, but maybe not…

  • avatar
    gasser

    I vote for same channel distribution for Genesis/Equus.
    I have bought 5 Lexus over the last 20 years, all from the same dealer. I like the lattes and scones, but the heretofore exemplary service is beginning to tarnish. The dealer offered maintenance included leases and now tries to upsell at every visit. Annual air filters and all fluid changes anyone? Mystery $25 oil additives on the bill anyone? And my favorite, why you need an oil change every four months. Twenty years ago there was a huge gulf between middle of the road and luxury vehicle in feel, options, design etc. Now the build quality and equipment of all cars is converging to a high level. Secondly, cost saving is evident on luxury cars in the trim and interiors….I can only guess what’s going on under the hood. Lastly, the Great Recession and the Internet have driven people to Value. Keeping costs down on distribution is as important as cheap parts sourcing. What will determine success in this market slice, however, is the lease price, and resale value is the biggest determinant of the lease price. That Hyundai dealership isn’t so bad now.

    • 0 avatar
      incyphe

      I agree 100%. I have 2004 ES and 2011 RX. The former has much higher quality interior, even though it’s a cheaper car. Softly padded lower-door panels, thickly lacquered wood trim with concave surface, nothing but french-stitching on soft leather.

      I dread going to the dealership for service. Ever since it expanded its service area, they became aggressive with upselling scheduled maintenance. $600 for 15,000 mile service is a complete joke.

      If you go by mfr manual, you should only need $100-$300 worth of service at most. I’m surprised Lexus HQ doesn’t crack down on this. I’m very weary of dealerships with large service department.

  • avatar
    aaronista

    That’s a very interesting angle Mr.Krafcik has put. While we may think we are smart ourselves, the strategic planning pros at Hyundai are probably smarter and backed by all the data and research we do not have. I am sure they know what they are doing. Koreans are quite smart and boy, they are determined.

    Also, past does not dictate the future. If it did, we’d never have Porsche SUVs, front wheel drive BMW/Mercedes-Benz that costs less than 30k, Ford Fusion with all the features and gadgets that were off limits to ‘normal cars’ in the old days, etc…

    While it will take time and lots of efforts, just like what BMW/AUDI have become in US compared to 30-40 years ago, or Lexus 20 years ago, Hyundai will ultimately succeed with this strategy.

    • 0 avatar
      SCE to AUX

      +1. Well said.

    • 0 avatar
      tonycd

      I think it’s simpler than that. Hyundai isn’t going to go the Lexus route, probably because it isn’t cost efficient.

      So, Mr. Krafcik’s job is to tell the public that decision is the only rational one to make. If he said anything else, we could be left to think it’s because Hyundai might be a downscale car maker.

  • avatar
    84Cressida

    Hyundai might be content selling modest amounts of Genesis and a few token Equus for now, but if they want to be a true player in this segment, they will have to launch another brand. Period.

    The Genesis is essentially what the Cressida was to Toyota. A nice luxury sedan that people like that sells in modest numbers. Toyota wanted a bigger slice of the pie and there was no way they could do that in the US with just the Cressida. The LS400 would’ve never had the impact on the market that it did if it was branded as the Celsior in the US and Europe. And by 1990, Toyota’s stellar reputation was long since established and stronger than what Hyundai’s is today. If Toyota couldn’t launch a German fighter, no way in hell Hyundai can.

    This Hyundai exec is just making excuses. Toyota would not change the strategy they have if they had the chance, nor would Nissan and Honda. I’ll bet Hyundai will wish down the line they launched a luxury brand earlier than they do.

    • 0 avatar
      bd2

      Cressida?

      Please, don’t make us laugh even further.

      The outgoing Genesis sedan is comparable to the 3G Lexus GS and far outstrips the Cressida.

      And as for “being content” with selling modest amounts – then what does that make Toyota with regard to GS sales?

      Being content with selling extremely modest amounts?

  • avatar
    Spartan

    Toyota already had a great premium upscale sedan in the Cressida before it was cancelled for the Avalon a few years later. It sold well over the years. It would have been a lot cheaper to keep the Toyota dealer network and sell what would have been Lexus cars as Toyotas.

    Lexus played the long game to compete with the way BMW and Benz works in the US and it worked. Hyundai is working the Benz/BMW strategy that they use outside of the US by having a full model range from economy car to all out luxury sedan. Time will tell, but I think it’s going to work.

  • avatar
    glyphics

    Which is exactly why Lincoln, with it’s dealer network and name recognition in place, is being sold-short by Ford’s Acura-like policy of offering their gussied-up mainstream cars as premium. Lincoln would stomp Hyundai/Kia in this market IF Ford had invested in product development rather than marketing badge engineered cars.

    Hyundai/Kia were smart to develop cars not brands.

    • 0 avatar
      bd2

      Honda invested in the brand and not the platforms (RWD) and powerplants (V8) and their sedan sales have seen a steep decline despite being at a lower pricepoint.

      Both Toyota and Nissan did invest in RWD platforms and V8 powerplants but aside from the Infiniti G and Lexus LS (both considerably cheaper than the competition) – have struggled to sell RWD models.

  • avatar
    Kenmore

    How about just dropping the “y” from the name so it’s a bit less redolent of mama-sans*, fish heads and fried pooch?

    *Used by US military community for any East Asian woman regardless of nationality.

  • avatar
    Type57SC

    What it he supposed to say? That the Hyundai brand isn’t strong enought to sell a $65k car? I assume that this kind of honesty would go over about as well in Korea as Axel Mees’s famous comment about the Phaeton that got him fired from his job as head of audi of america.

    Newsflash – sometimes OEM spokesmen aren’t being 100% honest when speaking to the media.


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