If Hyundai were a sports team, 2016 and 2017 would be viewed as "rebuilding years" ahead of big things planned for the rest of the decade.
That's not to say things are glum for Hyundai right now, according to Andrew DiFeo, chairman of the Hyundai National Dealer Council and general manager of Hyundai of St. Augustine in St. Augustine, Fla. But dealer concerns include a mix heavy of cars in an SUV/crossover market, declining profits and too many fleet sales.
While 2017 will see a slight adjustment in these areas, it's 2018 and beyond that has DiFeo, 41, excited. That's when a battery of new or refreshed models begins arriving at both Hyundai and Genesis stores.
Crossovers will be particularly bountiful for Hyundai that year: By then a new B-segment subcompact crossover will arrive, as well as a rugged redesign of the Santa Fe Sport and face-lift for the Tucson. On the Genesis side, the new G70 compact sedan will be on sale and its crossovers not far off.
With a car/truck mix better matched to the market demand in 2018, Hyundai will rely less on fleet sales while maintaining its focus on certified pre-owned sales and introducing new in-store digital retail tools. All of this will push volume higher and profits to more healthy levels. As is the case with any rebuilding team, patience will be key.
DiFeo, 41, spoke with Staff Reporter David Undercoffler.
Q: How was 2016 for Hyundai dealers?
A: From a big picture, a lot stems from that car versus truck product mix. If you look at Hyundai three or four years ago based on how the industry was selling, Hyundai was competing in about 67 percent of the market. For 2016, we're competing in about 52 percent of the market. So that definitely makes for a challenging environment to do business in.
But we are going in the right direction. If you also look a few years ago our car versus truck mix was about 80 percent car and about 20 SUV; we were one of the lowest in the industry, probably only Volkswagen for a mass-market brand, was lower than us. In 2016 we're going to finish closer to 70 car, 30 truck and for 2017 -- just by getting more production of our existing CUVs -- the plan is to get pretty close to a 60/40 car-to-truck mix.
That being said, 2016 profitability is down over last several years but it has stabilized so we think we're kind of at the bottom, and the bottom is still pretty good. A significant majority of the dealers are profitable; the number is close to 80 percent, as far as how dealers report profitability to manufacturer. There are certain segments of dealers -- whether it's volume or geographic location -- that are significantly more profitable than the average Hyundai dealer and those profits are in line with the Toyota and Honda dealers of the world, which is kind of everybody's benchmark when you're playing in the nonluxury volume game.
So we think 2017 will see some slight improvement to profitability. The OEM and the dealer body are really focused on some of the other departments or segments of our business.
Which segments are you focused on?
Used vehicles and CPOs. The CPO business has been growing for Hyundai; more dealers are getting engaged in that and there's a lot of benefits there not just from a profitability perspective. Service and parts; there's been a significant focus from the OEM and the dealer body in increasing our fixed absorption, that's going in the right direction. Dealers are improving their F&I profits through providing the customer a better experience in the F&I office and improving selling skills there.
So we think, with all of those things combined, that [in] 2017 we won't see a significant increase in dealer profitability but it will go in the right direction. And 2018, in my opinion and a lot of dealers' opinions that I talk to, Hyundai is going to be back on the map.
How will additions or updates to Hyundai's product lineup help?
We have some product introductions and product redesigns in exactly the right segments. We've got Santa Fe Sport with a significant redesign in 2018, almost repositioning the vehicle, it's probably going to be a little bit of a rugged, larger vehicle, still five-passenger. Tucson will get a significant face-lift. And then we will also have the introduction of the B-segment CUV coming in 2018 slotted beneath the Tucson. And in addition to that we also get a significant face-lift with Elantra in 2018 as well as the introduction of the Genesis G70.
That's not to say that 2017 will be slow. We've got the Ioniq launch. It's a fabulous vehicle. I've had a chance to drive it in Korea and it does not drive like an alternative-fuel vehicle, it does not look like an alternative fuel vehicle and that's how Hyundai will position the vehicle. Even though gas prices are still hovering around $2 depending on where you are, Toyota still sells a lot of Prius. There are still a lot of buyers for that type of vehicle and we think the Ioniq is going to put Hyundai on the map in that segment.
We have a significant refresh of the Sonata midsize sedan, and maybe a mini-launch of advertising behind it in the summer. So we'll get some traction with that. We'll have an all new Accent sedan as well as an all-new Elantra GT. So we've got some nice products to talk about for the Hyundai brand in 2017, still in those segments that are tough to compete in. Then we also have G80 Sport, which will really continue the cadence of the Genesis brand. It's a significant refresh to the Genesis body style, the G80 along with the twin-turbo V-6 engine.
So all that being said, given the hand that we've been dealt as far as our product portfolio, we compete relatively well in the segments that we compete in, they're just really, really tough segments to compete in given the way the market is.
What was your reaction to Dave Zuchowski being dismissed as CEO?
Dave was a great leader for the three years he served as CEO and with his time at Hyundai for over 10 years. He will be greatly missed and he's going to land someplace quickly. We're looking forward to working with Jerry Flannery during the transition and making sure the dealer voice is heard during all of this. Over the last couple of years, having the wrong mix of vehicles in market creates challenges: You're building vehicles the retail market can't absorb so fleeting is the tool that's used to move those vehicles. We had very high objectives that weren't achieved and on that level there was a degree of accountability for that. And the Koreans felt that that was a change that needed to be made.
How do things look for the end of this decade in terms of products and sales?
So I just talked about 2017, 2018. When we look at 2019, 2020, we'll see the Santa Fe become a true eight-passenger vehicle and the name goes away. We'll have an A- segment vehicle slotted beneath the B-segment that we've got coming. So by 2020 we'll have five CUV options. As well as some additional alternative-fuel vehicles.
If you look at where we are in 2016, we're probably going to do around 760,000 to 770,000 units. I firmly believe by 2020 Hyundai will be a million-unit car company in the United States when you combine Hyundai and Genesis together.
Talk about the status of the Santa Cruz pickup.
That vehicle has been greenlighted, it's just a timeframe question now about when we'll have that vehicle. But we will have the Hyundai Santa Cruz in the United States.
What kind of buyer will it target?
It's almost going to play in a segment of its own in terms of that urbanite millennial that wants the flexibility of a five-passenger vehicle yet they want to throw their bike or surfboard in the back for the weekend. The product planning people and we as dealers feel that there is definitely a want or a need for this type of product.
By 2020 or 2021, there's going to be very minimal white space in our brand, so we're really excited and very optimistic.
How are things on the service and parts side of the business?
They've introduced programs to help make sure dealers are focused on service retention, and that first, second, third maintenance are completed. Once we sell the car we want to bring them back to the dealership and they've put some tracking programs in place. The numbers are definitely going in the right direction. Are we talking double digit percentage increases? No, but they're going in the right direction.
Hyundai's workshop automation program called super service has been installed in significantly more dealerships in 2016 and you'll see more in 2017. It's a more efficient way of writing service up and providing consumers the recommendations that need to be done on their vehicles and that kind of goes hand-in-hand with Hyundai's.
We're seeing retention numbers increase, we're seeing hours per [repair order] increase, we're seeing customer pay as a percentage of everything increase, so those are the numbers you want to see go up.
How is the CPO program going?
Hyundai has one of the best CPO programs in the business. We feel as dealers that we would love to see our captive finance company increase their appetite for CPO business. They have programs in place to do that but the buying practices don't always align with what the dealers want as far as the CPO business with our captive company.
You talk to any dealer or even any sales arm of any OEM and would you always want the captive to buy more business, of course. Hyundai Motor Finance, we're going in that direction, where penetration levels were 35 to 40 percent in previous years, we're in the mid 50 percentage for penetration. But we feel there's still a few thousand units a month that the captive should be picking up on the new-car side and we feel they could definitely increase their support in buying practices to have more competitive buying practices on the CPO and to a lesser extent used vehicles but really on the CPO. We want our new-car business on our CPO business with the captive, their programs just need to be a little more competitive with what's out there in the market right now.
Are inventory levels a concern? Is the factory addressing that?
I think dealers have comfortable inventory levels, occasionally they spike up as too high maybe in sedans, because at the end of the day Hyundai is a production company and they're in the business of wholesaling cars to dealers. We have comfortable inventory levels now. We have welcomed the increase in production with Santa Fe Sport and Tucson and Santa Fe. Adding Santa Fe Sport to our Montgomery [Ala.] plant has helped improve that production as well as lowered the production of Sonata to make room for the Santa Fe Sport. But that production capacity has still caused some issues with fleet numbers.
We as a dealer body recognize that Hyundai is a production company and if we can't retail all of those cars, which we would love to do, that there is the market for fleet. We feel that right now the fleet numbers are unhealthy for the short- and long-term value of the brand. And as we see this mix in production shift in 2017 and beyond, those fleet numbers are going to go down. How quickly they're going to go down remains to be seen. And that's something that Hyundai Motor America executives are very aware of and they want them to go down too.
What would you like to accomplish as chairman of the dealer council?
World peace? [Laughs.] I've been on the regional or national council for going on six years now. This process is critical to the success of the brand and the dealer body and I think Hyundai has one of the best dealer council processes in place. We want to make it even better by improving the lines of communication between the OEM and the dealer body.
First and foremost, dealer profitability is always going to be at the top of our agenda. Is it going in the right direction? And I would love in two years to say that as a brand, our return on sales [is] on par with the leaders in the industry, Toyota, Honda one or two other OEMs. Again, I firmly believe that in 2018 we're going to see that, but I think that some of the things we're going to do in 2017 are going to help move in that right direction.
There are some major marketing initiatives that are going on from a digital perspective and as dealer council we need to make sure those are aligning with how we want to interact with the consumer. And also make all the dealers aware of all the tools that are going to be in place going forward. These initiatives are going to be best-in-class digital retailing methods and really put Hyundai on the map in the press. We're going to go to market differently, we're going to provide a better shopping experience for the consumer and "Oh, by the way, we've also got these great cars and CUVs to sell you" but we're going to make it easier to purchase them. We're working on new digital tools that bridge the transition from online to offline. You'll start seeing a little of it in Q1 and by Q2 it will be in a significant majority of the Hyundai dealer network.
So in two years I want to be able to say that we worked with Hyundai and we've got one of the best retailing experiences across our 800-plus Hyundai dealers.