Optimism over Hyundai Motor Co's first major makeover of its key models in about five years may fizzle as some industry insiders question whether the redesigns are too conservative for international tastes.
Hyundai is facing fierce competition in its home market of South Korea. Free trade deals opened the door for U.S., Japanese and European rivals, who are chipping away at its share in a market where it is accustomed to dominating.
To better compete, the company plans to launch a new, significantly redesigned version of its Genesis large car as early as next month, and a revamped Sonata mid-sized sedan early next year, although neither is likely to carry a new engine.
Hyundai is expected to tone down Sonata's bold lines and curves in a bid to appeal to a broader audience and boost sagging volume growth, particularly at home. But that could backfire in other vital markets such as the United States, where its flashier style is popular and has helped Hyundai establish a credible presence over the past few years.
"The two new models are the first to reflect Hyundai's more moderated version of its design language, and are key to energizing its growth," said Sang Alexander Koo, a professor and former designer with Hyundai's affiliate Kia Motors Corp .
"While the new Sonata will help embrace conservative consumers, it will not have as much impact as the current model did... The new Sonata could draw as much a divisive view as the current model. Some will say the change is weak and others may like it because it's more moderate," Koo said.
Hyundai spokesman Brian Sir said the company was "confident that our Fluidic Sculpture design language will continue to be highly successful". Fluidic Sculpture is a phrase Hyundai often uses to describe its style.
Expectations are already running high that the overhaul of an ageing lineup will help Hyundai raise prices and bounce back from what is likely to be its first earnings decline since 2008 this year. Hyundai shares are trading near a record high after jumping 18 percent over the past three months, outperforming Toyota Motor Corp, Volkswagen AG and General Motors Co.
The automaker is expected to report on Thursday its July-September quarter net profit was little changed from a year earlier at 2.19 trillion won ($2.06 billion), according to Thomson Reuters I/B/E/S. For 2013, profit is seen falling 3 percent, but it is likely to rebound to 9 percent next year, according to Thomson Reuters StarMine data.
The Sonata's last big makeover came in 2009, just as the global financial crisis was crushing auto sales. Hyundai opted for a bold style change, which helped it win a record share of the U.S. market and escape the industry-wide downturn largely unscathed.
But the bold look didn't go down well in Korea, its second-biggest market, where conservative styling is preferred. Now Hyundai is facing an uphill battle at home against foreign rivals, which have benefited from free trade deals and taken 12 percent of the market so far this year, up from just 2 percent a decade ago.
It could soon face the opposite problem.
"The new more conservative design might work in Korea, but it could well fall short of the company's expectations in the U.S. and China, those two key markets for volume," said an industry insider who has seen the new Sonata.
"Hyundai people think it its refined, but the car lost the identity it gained with the current model," the source told Reuters.
A second source who has seen the new model told Reuters it looked "like a car from the '80s or the early '90s".
VALUE FOR MONEY The new models come at a critical time for Hyundai and Kia, which are trying to rebuild their reputation after a massive recall in the United States and an embarrassing admission that their much-touted fuel mileage claims were overstated on more than one million cars.
Hyundai's U.S. sales inched up just 2 percent in the January-to-September period, lagging behind the industry's 8 percent rise and its own 4 percent growth target for this year. In South Korea, Hyundai and Kia saw their combined market share shrink to 69 percent in September, from 75 percent last year.
Imported rivals such as BMW, Lexus and Volkswagen are rapidly increasing sales by offering stylish, fuel-efficient models at cheaper prices.
A senior Hyundai official told Reuters in August that it was expecting no domestic market share gain next year from this year's projected 42 percent level, even with the new car launches.
Hyundai's current engines are expected to be carried over to the next generation, unlike in the past where Hyundai refreshed its powertrains every five years, said Chung Sung-yop, an analyst at Daiwa Capital Markets. Some investors expect no major improvement in fuel economy, he added.
Hyundai said some of it new Genesis versions will be all-wheel drive model, its first all-wheel drive sedan, as it seeks to go up-market with premium models to better compete with rising sales of luxury imports.
"For Hyundai, Genesis will be a make-or-break model. Being the mass-market producer, they need to do it right to win premium image and achieve higher profitability," Chung said.
Even with the new models, Hyundai will have a tough time gaining ground against Japanese and U.S. rivals, said Park Sung-jin, a fund manager at Woori Asset Management, which owns Hyundai shares.
"Gone are the heydays for Hyundai. I doubt whether they can accelerate growth again and repeat the double-digit growth of the past," Park said. ($1 = 1063.5250 Korean won)
(c) 2013 Financial Mirror. All right reserved. Provided by Syndigate.info an Albawaba.com company
Original headline: Hyundai Motor goes conservative with redesigned Sonata, Genesis
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