(Bloomberg) -- Hyundai Motor Co. Chairman Chung Mong Koo proved the South Korean automaker can build reliable, value-for-money cars by beating Toyota Motor Corp. and Volkswagen AG in benchmark U.S. quality surveys. His son now wants to show Hyundai can be synonymous with luxury, too.
Hyundai will start sales of its new G80 mid-sized sedan in South Korea next month, the second of a six-model lineup planned for its burgeoning premium marque called Genesis. Vice Chairman Chung Eui Sun, the son of the chairman, has been fronting the brand, introducing it in Seoul in November, then announcing plans to spin it off into a standalone division at the Detroit auto show two months later.
The stakes are high for Hyundai, which faces competition in the low-end of the market from Chinese brands after missing its sales target last year for the first time since the global financial crisis. While luxury cars command a premium and are typically more profitable, the field is crowded and dominated by the German duo BMW and Mercedes-Benz. Among Hyundai’s Japanese rivals competing in the segment, only Toyota Motor Corp.’s Lexus has given the Germans a serious run for their money.
“Chung Eui Sun needs a monumental achievement for Hyundai,” said Ko Tae Bong, senior auto analyst at Hi Investment & Securities Co. in Seoul. “Especially when Hyundai is facing limited demand for its value-for-money cars, the luxury brand, of course, will be the next step.”
To help bolster Hyundai’s luxury prospects, E.S. Chung, as he’s sometimes known in foreign media, hired two high-profile designers from Bentley Motors -- Luc Donckerwolke and Lee Sang Yup -- as well as Manfred Fitzgerald, a branding executive from Lamborghini. The new hires, dubbed by South Korean media as the “foreign avengers,” join Peter Schreyer, who left Volkswagen to oversee design at Hyundai and affiliate Kia Motors Corp.
The younger Chung’s “level of managing the Genesis brand is exceptional,” Fitzgerald, now senior vice president at Hyundai Motor, said in an interview at the Busan motor show last week. “He is involved in all decisions.”
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Hyundai plans to introduce the G80 and the bigger G90 sedan in the U.S. from the second half of this year, and to gradually expand the Genesis brand to overseas markets. The carmaker is still deciding on options and timing for China and Europe, Fitzgerald said.
To meet strict environmental regulations globally, Genesis is planning to have electric models that would compete with Tesla Motors Inc., he said.
The fledging Genesis brand faces an uphill slog, with most of Hyundai’s mass-market competitors also investing in their premium brands. Both General Motors Co. and Ford Motor Co. say Americans are paying more for their Cadillac and Lincoln models. Cadillac is introducing its new CT6 sedan and XT5 SUV, while Lincoln is reviving the Continental sedan.
Hyundai’s strategy is reminiscent of Toyota’s. The Japanese giant spun off its Lexus division in 2012, separating management and resources from the mainstream Toyota brand with the aim of creating an organization more nimble and responsive to market tastes. Lexus was the top-selling luxury brand in the U.S. for an 11-year stretch that ended in 2011. Hot-sellers including the NX crossover are putting it back in contention with Mercedes and BMW in the U.S.
In China, a bigger market for Hyundai than the U.S., Honda Motor Co. is poised to begin local production of its first Acura SUV this year. Honda’s luxury brand is seeking to replicate recent momentum in the U.S., where its sales passed Cadillac last year. Nissan Motor Co. also set up a separate headquarters for its Infiniti brand in Hong Kong in 2012 to focus on expansion in China.
While selling high-end vehicles will boost profit margins for Hyundai, the carmaker will struggle in the short term with a sedan-only lineup as U.S. consumers are favoring SUVs, according to Jessica Caldwell, director of industry analysis at Edmunds.com.
“The luxury market in the U.S. has never been so competitive, which poses an incredible challenge for the Genesis brand,” Caldwell said. “In addition to the traditional premium brands, mainstream brands are growing their list of features and content, which put them closer to luxury than ever before.”
For now, Hyundai appears to be following the same strategy with its fledgling premium marque as it did with the popular sedans, pegging them at a discount to its main competitors or offering more features in similarly-priced models. The G80 sells on average at a 24 percent discount compared with full-size models from Lexus, Acura, Infiniti, Audi, BMW and Mercedes-Benz, according to pricing data from TrueCar Inc.
“The Genesis brand will be successful if it can attract buyers who are not just tempted by the value proposition and become true fans of the product,” said Caldwell, at Edmunds.com. “Building a luxury brand is a process that could take upwards of a decade, so Hyundai must demonstrate total commitment.”
To contact the reporter on this story: Sohee Kim in Seoul at firstname.lastname@example.org. To contact the editors responsible for this story: Chua Kong Ho at email@example.com, Craig Trudell
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