Kia's 2016 performance was a glass-half-full/glass-half-empty proposition. Sales were up nicely -- particularly impressive considering Kia's lineup is light on light trucks. But dealer profits dropped about 16 percent for the year.
With Kia's aggressive goal of a 5 percent market share by 2020, that profitability drop is concerning to dealers, according to Benny Yount, outgoing chairman of Kia's dealer council. Yount owns Paramount Automotive Group in Hickory, N.C.
While communication between Kia's dealer council and its executives -- particularly Kia Motors America CEO Jang Won Sohn and COO Michael Sprague -- is excellent, it's an ongoing effort to keep Kia Motors America and Kia Motors Finance aware and reacting quickly to rapid market changes so that the market share goal doesn't come at the expense of profits.
Yount, 65, spoke with Staff Reporter David Undercoffler about what Kia's dealers face as they march toward the share goal.
Q: Kia's U.S. sales rose 3.5 percent in 2016. How were Kia dealers' profits for the year?
A: That's the unfortunate thing: Volume's up but profits are down. The average Kia dealer's profit for the year is probably down about 16 percent. Any time you have a decline in dealer profits, that presents a lot of problems for our managers. Our employees' compensation is affected, our working capital is affected. You can't continue to build working capital, then that curtails investments in facilities and improvements. So it's always critical that profitability stays up there where you can continue to create the working capital that's needed because there's a lot of things that need improvements.
What areas need improvements most?
We always need to make sure we have our facilities correct and the right representation of the brand. A lot of dealers just in the last few years have invested millions and millions of dollars in those facilities. The dealers that haven't invested yet, I'm sure they look at their profitability and they might be a little hesitant to invest if they're not generating a good profit.
And Kia, they're very cognizant of this and they're working very diligently to try to do everything they can to bring the necessary programs and the adjustments to the MSO (Market Share Objective, Kia's stair-step program) that will continue to help us get those profits back to where they need to be.
What caused profitability to drop?
We're in a much more competitive marketplace than we have been in the past. One thing that I think has really affected us: We really don't have any trucks per se or large sport-utilities. The Sorento is a great vehicle. We do very well with it. But when it comes to crossovers, we have very few. And trucks have been such a hot seller this year. So I think that's hurt us a little bit.
Also, there's been a lot of competition and a lot of pressure on the markets that we're in. Take the midlevel markets where we sell our Optimas. That segment's been down, and that's been one of our volume cars. So that's hurt a little bit. We've got great products that Kia's brought to the table for us. But we're not going to have a truck any time soon; we might never have a truck. But the Sportage that's just rolled out has been a very nice addition. That's something that's really getting us ahead. At first we had a little problem with supply but they've cranked that up and that's rolling along very nicely now.
We have a new Forte now and a new Cadenza. Those things are just hitting the ground and if we can get the right support from Kia, then I think that will be a big plus for us.
How can Kia help dealers sell more vehicles?
At the end of the day, you have to have the right support programs from the manufacturer. Our MSO program, our stair-step program, has been a good program over the years but we've made some changes to it and I think we need to make more changes. We need to continue to tweak it to get it right.
That's been a sore spot with a lot of the dealers, this MSO program and its objective. We have a very aggressive plan in place that we want to reach 5 [percent] market share by 2020 and so we're on track to do that but we've got to make sure that while we're on track to hit the volume, that we cannot sacrifice dealer profitability in the meantime.
You have to have a strong captive in the finance area. Kia Motors Finance has been a good partner. They've really come to the table with a lot of stuff, but the market continues to change and they're going to have to come back and give the dealers more assistance and really monitor the marketplace to make sure they keep us competitive.
What is Kia's market share now?
I think we're at about 3.8 percent share right now.
Are dealers confident they can hit 5 percent by 2020?
I think they feel pretty strong about that. When we see the products coming, we've got a lot of confidence in those products, and it's going to come down to the support programs that we have to keep us competitive. And if we have that in place, then I think we're sure up to that challenge. And I think we're probably looking at 900,000 units a year and I think we're above 600,000 units now.
Are dealers asking for the new B-segment crossover that Hyundai and Kia are expected to debut?
Absolutely, they are asking for that. And one of the other things they're really asking for -- you know the Soul is just such a great seller for us, and for years we've really wanted to see that in all-wheel drive.
Is that something Kia is planning?
There's been a lot of discussion. We've talked about it. It's under consideration. I think at the end of the day they'll come up with something where either that vehicle will be the all-wheel drive or they'll have something better that will work.
Interest rates are rising. Are dealers concerned about the impact on floorplanning?
That's a major concern for any dealer. The biggest expenses you have are advertising, personnel and floorplan expense and operation. So that's an area of concern; we currently do not have floorplan assistance from Kia. And that's been another topic that's been brought up from time to time and there are various reasons that we don't.
A lot of that money that we would normally have for floorplanning assistance is put into incentives and stair-step programs for the dealers. And I think as a whole we've sort of enjoyed that because it's really helped keep us competitive. Now, you have a portion of the dealers that like it and you have a portion of the dealers that say, "Look, just give us the floorplan assistance because we know that this is what we're going to be getting every month." I think those are subjects that will continue to be discussed.
How is service business for Kia dealers?
Service has been a bright spot. I think the fixed operations for most dealers has been a bright spot, it continues to grow. Fixed absorption is growing every year for Kia dealers. John Crowe (Kia's vice president of service and aftersale operations) and his team do a great job. They work diligently to make sure that these recalls have not hurt us. With all the franchises we have, we've had the least amount of disruption with Kia recalls than any other franchise. And that's a testimony to them just trying to stay in front of that situation.
J.D. Power named Kia vehicles No. 1 in its 2016 Initial Quality Study. Are Kia dealers seeing a tangible effect of the award?
The way that the consumer has responded has been very positive. I hear in conversations and meetings and everything else that people really took notice of that. And I think we've had people that came to the Kia brand because of that award and really recognized that, gosh, here is a nonluxury brand that has ended up as No. 1. And we look at the manufacturers behind that -- Porsche is at No. 2 and so on down the list -- where you get into all these really high-end vehicles. And here is Kia at No. 1. There's got to be a reason for that. So it's been a great asset for the Kia brand. It's increased sales. It's brought different customers. I think it's brought a new, more upscale buyer to the brand. So it's been such a positive effect on the overall image of the brand and I think there's a lot of residual in that.