Hyundai gives us a large luxury sedan. How will it fare?
Tuesday, January 8th, 2008
In a few months, Hyundai will start selling the Genesis, a large rear-wheel-drive luxury sedan with an optional 368-horsepower V8. Notably, this sedan arrives just as Cadillac and Lincoln decide that a DOHC V8 engine for their cars is no longer financially justifiable. Can the new Hyundai succeed in a segment that the domestic nameplates appear to be abandoning?
With the Genesis, Hyundai is taking a few key pages out of Lexus’ 1989 playbook for the then-new LS.
First, specs. The basic specifications–exterior dimensions, engine configuration, horsepower–are close to those of the target cars. Interior dimensions are probably also similar. There’s no attempt to either cut a corner or go above and beyond.
Second, styling. Even more than that first Lexus LS, the new Genesis “borrows” styling cues from leading competitors. There’s a strong Lexus flavor to the exterior, but with bits of BMW 5-Series and 7-Series and Mercedes S-Class tossed in. The result is more a pastiche than a cohesive whole, but most of the target market won’t mind. After all, a similar design strategy hasn’t been hurting the new Honda Accord.
Inside, the resemblance is strongest to the big Benz, but a Lexus flavor is present in the details.
So, dimensionally and aesthetically, we have a copy.
Third, like Lexus back in 1989 Hyundai isn’t seeking to appeal to driving enthusiasts. The Genesis is unapologetically a luxury sedan, not a sport luxury sedan.
Fourth, like the Lexus LS the Genesis will be priced way below established competitors, probably in the low thirties to low forties. So, at least initially, they’ll lose buckets of money on the car.
But while the Lexus LS started out at $35,000 back in 1989, over the next four years this price rapidly increased to $50,000. I cannot remember another car that has increased so rapidly in price after adjusting for inflation (which was low in those years). So while Lexus lost money for a couple of years, this didn’t continue to be the case.
Hyundai might be hoping to pull off a similar feat. But the odds of this aren’t good, for at least three reasons.
First, Hyundai still doesn’t have the reputation Toyota had even back in 1989.
Second, the Genesis is being marketed as a Hyundai, not as part of a new premium brand.
Third, and I think most importantly, the Genesis brings nothing new to the table. The first LS certainly resembled its targets in many ways, but it brought a few major innovations to the table as well. Most notably, the car’s extremely high level of refinement, its smoothness and quietness, eventually shook up the entire car market, from top to bottom. All cars are much quieter and smoother today because of that first Lexus LS. Also widely influential, but a smaller piece of the puzzle: a dramatically lit high-tech instrument cluster. Sure, there had been glitzy high-tech-seeming instrument clusters before, but the one in the first LS was far more tasteful, and a truly awe-inspiring experience at the time. Instrument clusters haven’t been the same since.
Put another way, while the Hyundai Genesis strives to offer (roughly speaking) 90 percent of what the target cars offer at 70 percent of the price, it doesn’t offer 110 percent in any area.
Without something new, the Genesis won’t break through the way the first Lexus LS did. They won’t be able to ramp up the price, so profits will prove ellusive. The Koreans’ forays into the next segment down, the Hyundai Azera and Kia Amanti, haven’t sold well. If you can’t sell $30,000 cars, good luck selling $40,000 cars.
My sales prediction: they’ll be lucky to sell 20,000 Genesis per year in the U.S., perhaps 5,000 of which will be V8s. After all, this would match the Infiniti M, which is priced about $10,000 higher, but has a much more prestigious brand and has won many comparison tests. With such limited volume potential, no wonder Detroit has decided that a V8 can’t be financially justified.
Perhaps Hyundai’s primary goal isn’t profits, but prestige. Perhaps they hope to sell more Elantras and Sonatas by having the Genesis in the same showroom. But the same factors apply. Without some breakthrough aspect to the car, some area in which it offers 110 percent, prestige will prove even more ellusive than profits. You can copy many things, and succeed. But you cannot copy everything, and succeed.