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Krafcik Hyundai looking for ways to increase vehicle supply in US
<p> <strong>Krafcik: Hyundai looking for ways to increase vehicle supply in U.S.</strong></p>

Hyundai Pursues Growth Track With Caution

The auto maker is focusing on economical ways to increase production, upgrade dealer showrooms and build its brand.

LAS VEGAS – It’s everything in moderation for Hyundai Motor America as it seeks to stay on an upward track while avoiding pitfalls that come with rapid growth.

Speaking at the J.D. Power and Associates International Automotive Roundtable conference on the eve of the opening of the National Automobile Dealers Assn. convention here, HMA President and CEO John Krafcik says the auto maker is pursuing ways to squeeze out more production to meet market demand, but won’t take the drastic step of a brick-and-mortar investment.

He also says Hyundai will continue to dial back on fleets, estimating the sector will account for just 6%-7% of sales this year, down from 10% in 2011.

Part of that cut is an effort to funnel more cars to dealers to satisfy retail demand, where volume continues to be curbed by short supply, but the limit also is part of an effort to protect the brand.

“In the early years, it was a way to get people in our cars,” Krafcik says. “It was a positive experience. But then it becomes a risk to an established brand.”

Hyundai also is pursuing dealer-facility upgrades, but won’t pressure franchise holders to shell out the millions some other brands are requiring dealers to spend for redesigns.

Industry sales should reach 13.8 million light vehicles in 2012, 15.4 million units next year and 16.2 million in 2014, Krafcik says. “Things are looking pretty good, really.”

He doesn’t forecast Hyundai sales, but says the target is to at least maintain its all-time high 5.1% market share earned last year.

Hyundai now is among the top six brands in the U.S. based on volume, but in the car retail sector, alone, it is No.4, the HMA CEO says. To stay there, the auto maker needs to increase supply, but its approach will remain conservative. 

“Hyundai had the lowest days’ supply (in 2011),” Krafcik says.

That was despite successfully squeezing out an additional 30,000 vehicles from its Alabama factory and sister company Kia’s Georgia facility. Combined, the two plants produced about 420,000 vehicles in 2011.

The auto maker is hoping to increase output further this year, though Krafcik won’t speculate on how much volume may be hiked. It also is making a case with its South Korean parent to allocate more output to the U.S. market.

“We’re looking for additional volume from wherever we can get it,” he says. “There are pitched battles between (regional management) to get more production capacity allocated. We call it creative tension.”

There still are no plans for new brick and mortar, as Hyundai continues to be cautious about expanding too far too fast.

“The production constraints you’ve heard about are real,” Krafcik says. “We could have approved incremental new production capacity. But we didn’t because we are wary we could make a mistake and that would impact the quality side.

“We’re trying to plan for long-term growth – five or 10 years – by focusing on quality and product” not volume, he adds.

The tight supply has had a positive effect on transaction prices and incentive costs. In 2011, only 18% of Hyundais were sold with rebates, and incentives averaged just $1,005 per unit. The new midsize Sonata has not had any incentives since its launch, Krafcik says.

Hyundai also is being reserved when it comes to showroom upgrades, a hot-button with dealers, who believe auto makers are demanding investments that are too costly and micromanaging the facility redesigns.

Pointing to published reports that put investments for some brands at up to $5 million, Krafcik says 345 of Hyundai’s roughly 800 dealers will have completed facility retooling by the end of this year that averages $900,000 in cost.

He flashes slides here showing 10 revamped dealerships that remain unique in character but incorporate common large blue illuminated Hyundai signs as a corner pieces, common façades and wide entry ways.

Inside, the emphasis is on modern waiting areas, with free Internet access and a variety of refreshments; “inexpensive” accoutrements, Krafcik says. “We want an appropriate level of brand specificity. We don’t want to specify the color of the grout in the bathroom.”

But pointing to sagging J.D. Power Customer Satisfaction Index scores, Krafcik says dealers will need to do a better job. Hyundai jumped to No.7 in CSI brand ranking in 2010 from No.19 in 2009, but fell back to 15th last year.

“It’s been a great struggle for us to understand how to crack this code,” he says of customer satisfaction.

To counter, Hyundai will roll out a new dealer program that takes some of the unique test-drive and service programs run with its Genesis and Equus luxury models to its mainstream models.

“We learned a lot from Equus,” Krafcik says. “Now we are going to see if we can scale that up.”

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