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Insight: Hyundai

Hyundai retailers can expect their margin structure to alter this year as the carmaker introduces new standards.

Dealers’ current margin is split between trading and standards, which is composite and marketing based. Hyundai will now put less reliance on car-related bonuses and more emphasis on the back-end.

This will be divided between three areas: process/training to prepare dealers for new products, conquest sales and more corporate business; facilities, with an internal/external corporate identity programme due to be introduced shortly; and e-commerce/marketing.

“We will increase retailer margins by as much as 2-3 percentage points, but we want to make the standards more meaningful,” says Hyundai UK managing director Tony Whitehorn. “Values will be linked into the margins and will be shown in touch points where the customer sees the brand, such as product, communication and the dealer network.”

The old and new schemes will run in parallel for a few months to enable Hyundai to compare and tweak.

The brand image portrayed by dealers is of increasing importance to Hyundai – one look at its own TV ads shows how the Korean company is looking to move upmarket.

Last month, it took dealers to the head office in Germany to see new products and the new showroom design. Dealers were shown the type of furniture they will need but told they can source it from wherever they like, as long as it looks the same.

The external design is the white-on-blue logo introduced last year. Almost one-third of dealers have adopted it – the rest will have made the change by the end of the year. Hyundai is paying the costs.

The image makeover isn’t just about the look of the showroom – it’s also about the internet. Hyundai’s website receives more than one million visits a year. If customers drill down to the dealer’s website, they will expect it to match the look. “There will be a template for dealers and that will be part of the standards module,” Whitehorn says.

#AM_ART_SPLIT# Changes to the approved used programme – including new branding, one-year warranty and 14-day hand back – will open up access across the network, enabling dealers to look at each other’s stock. They will also have access to all Hyundai’s ex-fleet cars via the 2nd Byte service The website and rebranded used scheme will be launched by June.

Last year, the proportion of unprofitable dealers in the 147-strong network halved from 40% to 20%. Metal margins rose by £200 per unit, thanks to a richer product mix and fewer discounts.

Hyundai expects that trend to continue this year with the revised Coupe and new i30.

Return on sales nudged above 1% last year, up from 0.3% in 2005. The new margin structure will help the network average to rise to 1.8%, although this year “any increase on 2006 will be good”, says Whitehorn.

Network growth has taken longer than expected – Hyundai was hoping to reach 155 dealers by the end of 2006 and was expecting to appoint seven more in January. “We appointed 12 new dealers last year, but we also terminated 12,” says Whitehorn. “We hope to appoint around 20 this year.”

Hyundai’s UK strategy has been laid out until 2010-12 when sales are scheduled to hit 70,000 for a 3% market share (4.5% share of retail sales). The network will increase to 180 dealerships, each averaging 350 new and 400 used cars per year.

Over the next 18 months every volume model will be revised.

The i30 five-door and estate go on sale this year; the i10 (replacing Amica) and a new product, a van/minibus, by the end of the year; the i20 (new Getz) and i40 (new Sonata) next year; the new Tucson at the end of 2008; and a revised Matrix mini MPV next year.

Fleet business will play a key role in raising sales. Hyundai is launching a corporate network this year with up to 12 dealers initially joining. Each will employ a corporate salesperson and offer admin support, courtesy cars and demonstrators.

In return, Hyundai will provide training and will invest up to £250,000 generating qualified leads. It hopes to raise fleet sales from 20% of volume to 45% by 2010-12 for a 2.5% sector share (2006: 0.8%).

Whitehorn is confident he has the network and the products to achieve Hyundai’s ambitions. “We have gone from a franchise where cars are sold on price to one that is becoming affordable aspiration and value for money,” he says.

#AM_ART_SPLIT# Focus moves from USA to EU

Hyundai is moving its focus from America to Europe, illustrated by the new £750m plant in the Czech Republic, according to Korean Ken Lee, president at Hyundai UK.

“It’s a big ambition to expand our European business and the UK is crucial – it’s the first operation to become manufacturer owned,” Lee says. “We want to extend our success in the UK to other European countries.”

He disputes claims made by some analysts that Hyundai wants growth at all costs. “Growth needs to be profitable and sustainable and it is more gradual than has been portrayed.”

The business

No of dealers: 147 main, 11 satellite
Projected end 2007: 153, eight satellite
No of open points: 37
No of authorised repairers: 11
2006 sales: 35,589
2007 target: 36,500
Dealer throughput 2006: 170
Dealer throughput 2007: 175

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