Hyundai Motor Co <005380.KS> plans to hold the line on adding U.S. dealers even as it eyes a roughly 10 percent jump in sales this year, executives said on Monday.
The move takes aim at a long-standing concern among Hyundai dealers and potential dealer operators about whether the South Korean automaker would protect the profitability of its U.S. dealerships by capping growth in the number of its franchises.
That strategy has been followed with success by major Japanese automakers led by Toyota Motor Corp <7203.T>, making those often highly profitable stores a favorite of listed dealership groups like AutoNation Inc
Hyundai expects to sell about 590,000 vehicles in the United States this year, up 9.7 percent from about 538,000 in 2010, said David Zuchowski, Hyundai's executive vice president for U.S. sales.
You don't need more dealers to sell more cars, Zuchowski said after a meeting with Hyundai dealers in San Francisco, part of the National Automobile Dealers Association convention.
Executives said 85 percent of Hyundai's 804 U.S. dealerships are profitable, and dealers saw an average profit increase of 57 percent in 2010 compared with 2009.
We're able to attract outside investors -- big dealers who weren't interested in Hyundai, Zuchowski said.
In an interview on Friday, AutoNation's Chief Operating Officer Mike Maroone told Reuters the company is interested in adding to its Hyundai dealerships in the right markets.
The Hyundai business model is a much better business model, Maroone told Reuters. The product cadence, the product quality (and) the resale value has improved immensely.
Quality problems plagued Hyundai in the mid-1990s. But in 2010, the nameplate was ranked No. 7 in J.D. Power and Associates' initial quality study, beating out luxury brands like Lincoln, Cadillac and Infiniti.
Next month, the automaker will launch an upgraded rear-wheel drive Genesis sedan that will compete with the BMW 3-series, Hyundai Motor America President and CEO John Krafcik said. The sedan will be priced between $45,000 and $50,000.
There are still some markets where Hyundai would like to boost its retail presence, including areas in the South and Southwest portion of the United States, known as the Sun Belt.
But the automaker is anxious to avoid the rapid growth pace that hurt its dealer profits in the past, executives said.
Krafcik said the automaker's sales growth in the United States in 2011 will be hemmed in by capacity constraints at its plants.
Hyundai has said it will increase its U.S. production to 330,000 in 2011, up from 300,000 last year.
The automaker operates an assembly plant in Alabama that makes the Sonata sedan and the Santa Fe SUV and executives have said previously that the fast sales growth of recent years means that Hyundai will have to look at adding production capacity in the near future.
It makes a lot more sense to move in a measured fashion, Krafcik said. We don't want to assume too much success.
Hyundai's U.S. sales rose 24 percent in 2010, the fastest growth of any of the large automakers in the U.S. market.
(Reporting by Deepa Seetharaman and Bernie Woodall, editing by Gerald E. McCormick, Phil Berlowitz)