AIADA Special Interview Huyndai Alabama - Part One

Four months of double digit sales increases in 2005 for the fastest growing car company in America are not enough to satisfy Hyundai Motor America’s gregarious and aggressive president and chief executive officer, Robert “Bob” Cosmai. An auto industry veteran, Cosmai has very ambitious goals and objectives for the company he has headed for over two years. He wants more, much more.

We met last month in San Francisco during the media launch of the new Sonata, a vehicle Cosmai described as being, “Our most important new product launch to date.”

The 2006 Sonata, the first of a 24/7 Hyundai program – 24 months to introduce 7 new products – is also the first new vehicle to roll off the $1 billion new Hyundai factory in Montgomery, Alabama, that can produce 300,000 vehicles a year.

The buzz is underway. Both general business news and automotive press (who often disagree) have evidenced a high degree of interest in Hyundai and its president with recent front page articles, magazine covers and personality profiles. And they should.

Taking a phrase from an almost forgotten ad campaign, You’ve come a long way baby, could be the theme song for Hyundai Motor America and its existing dealers. From very poor product quality just a few years ago, 1998 to be exact, with sales of 90,000 or so units, last year the Hyundai division sold 418,615 vehicles – a triple digit increase. How?

Well, one way was with vastly improved quality. J. D. Power and Associates recognized the Hyundai Sonata for having the highest initial quality in the Entry Midsize Car category. Additionally, it was rated Most Appealing Midsize car two years in a row.

Now, that’s a big turnaround in an industry not known for its alacrity, so an interview with Cosmai was arranged by Chris Hosford, the company’s VP of communication.

I had seen Cosmai at auto shows, but had not met him until the dinner before the Sonata introduction the next morning, and that was a quick handshake and how-do-ya-do. Early the next morning when I went to the hotel’s fitness center, Cosmai was already pumping the elliptical machine and pushing himself. Strange it may seem, you learn a lot about someone by their workout habits.

He didn’t recognize me. Yet I was on a treadmill opposite him and had been seated across from him at dinner a few hours before. The man was intent on reaching his workout goal. He was not taking it easy, he was pumping hard, even with a knee brace he looked like a jock. Concentrating. Focused. Intent. Direct. He got off the machine, said, “Oh, hi Marty, see you at breakfast. Have a good workout.” He walked to another machine, lifted some weights, then walked out … “See ya,” he said.

My impressions? Cosmai is an intense, up-front guy who is direct, focused and forthright. There’s no BS with this gusty CEO. I know you’ll agree with me after reading some of his comments, highlights of a very interesting and candid conversation.

M: Your sales so far this year are double-digit up, can you continue this accelerated growth to reach the goal of 1 million units by the end of the decade?
BC: It’s an aggressive goal, but we always establish aggressive goals for our company. In 2004 we were under 500 thousand units, so a million is pretty strong. But we’re a hungry bunch, focused on making progress, improvements, new product segments, continuing the quality story that resonates so well with consumers and by strengthening the dealer organization. Yes, we think we’ve got a good shot at it.

M: What is going to drive Hyundai and its dealers forward?
BC: Very good products, great quality and strong dealers will help us increase our numbers and our marketshare to move in that direction.

M: What role have your dealers had in this growth?
BC: A big role. Even with a 364% increase in sales over the last 6½ years our dealer organization has increased by only 37%! Now that may sound like a lot, but when I joined the company in 1998 we only had 472 dealers – there were more dealers giving it back than signing on.

M: That had to be challenging … how did you solve that problem?
BC: I’d been in the car business a long time, (Ford and VP sales at Acura). There were a number of people who questioned why I went over to Hyundai. I talked to them about a lot of changes that were being made and said I would not have made the change unless the parent company was behind us and wanted to turn this franchise around. Then, I started signing up a few of my old dealer friends.

M: How have they done with the Hyundai brand?
BC: They’ve done extremely well. Actually, a lot of the recent sales increase has been driven by a lot of the new dealers that we’ve signed up. A lot of opportunities to grow.

M: What are your plans for adding more dealers?
BC: When we add dealer points now, it’s done carefully. The objective is to satisfy the demands of potential Hyundai buyers as we launch new segments. First to minimize the impact on dealers currently in place and secondly, to make sure the new dealers are profitable in the first year of operation.

M: Do your expansion plans include stores that exclusively sell Hyundai?
BC: When we were not selling many cars, we were ‘dualed-up’ … selling just 90,000 vehicles means you don’t have much of a choice. Exclusivity is important to us today and in the future. Building more exclusive operations results in dealerships that completely rely upon all their people to make money-selling Hyundai’s – sales, servicing and parts. It’s an important point for our current dealers to consider becoming exclusive operations.

M: How does exclusivity benefit your dealers?
BC: You can convince people to do a lot of things if they’re making money. I want our dealers to feel ... to be excited about the Hyundai franchise. Not only in terms of selling more cars, but because they’re making a great return on their investment. I want it to be a highly coveted franchise.

M: What do you expect from them?
BC: The average Hyundai dealer sells 660 vehicles per store -- that’s one of the top six in the industry. Toyota, Honda and Lexus are the top 3 and are the only ones selling over 1,000 vehicles per dealership – that’s where I want Hyundai to be someday!

M: Is that a realistic, pragmatic objective for most of your dealers?
BC: If I were a dealer selling 400 now, seeing other new products coming my way, I think maybe I could sell 800 or 900 or even a 1,000 a year. So, yes it is realistic. Exclusivity is good for our dealers and it’s good for us. If Hyundai sells a thousand per store and we have upwards of 800 to 1,000 dealers, that’s how you get the one million vehicles sold. But to do that we’ve got to be in more segments – and we will be -- and our dealers have to be profitable -- and they are and will be.

M: How will you select markets or market areas for expansion?
BC: A lot of different variables are considered along with research and data from Urban Sciences. They gather detail on population density and growth, where the market is growing geographically, where all the majority of car dealerships are located, and other factors. From this we identify new markets.

M: And ….?
BC: There are about 270 markets where Hyundai is not now represented. This list has been prioritized to get an idea of how big the market will be or could be. Only then will we go into new markets. They must be ready to go!

M: Exclusive dealerships are known to be a big investment. What are your expectations for a new facility?
BC: This is a sensitive issue … I’m not interested with worrying about building pretty buildings – no mausoleums with crystal chandeliers are necessary -- we have reasonable facility requirements. Not an old-style closing booths environment, rather an open feeling with knowledgeable sales consultants that are product oriented. Customers should be comfortable and want to come back.

M: What else is essential?
BC: Having people in sales, service and parts that are focused on the Hyundai franchise. This makes the transaction easy from beginning to end. When the customer returns for service, the service experience should make them feel they are well taken care of. Total Hyundai.

M: Is Hyundai working to add minority dealers?
BC: Right now a little over 9% of our dealer organization is represented by ethnic minority dealers. We work with minority organizations because we feel diversity is key for us in terms of building our organization. It represents a good opportunity for prospective minority dealers. Other brands are pretty mature in their dealer bodies and are not adding new dealers, minority or otherwise. As we expand, diversity is going to make us much stronger. A lot of our current minority dealers have done a tremendous job and we’re very happy with their success. We both win.

M: Does Hyundai have an organized, functioning dealer council?
BC: We have a dealer council and it is utilized as a real council. We don’t go out and play golf, come back and have nice lunch or dinner – we never play golf -- it’s all business. I think we’ve done a pretty good job. Our current dealer council is the best I’ve ever seen. We talk about business. If I can’t satisfy them or the dealers they represent we are not moving ahead as a franchise.

M: What role do the members of the council have in counseling?
BC: Dealers on the council have a constituency – they have people they are responsible for. I want them to represent their region and get input from all. it’s not just looking out the back door to see what’s happening in Detroit or Chicago or somewhere. There’s always room to improve – we use this as a mechanism to really find out what the dealers’ major issues are. Our business is dynamic and we must be responsive.

M: Hyundai has invested heavily in America recently, hasn’t it?
BC: Almost $1.5 billion. Our chairman is obviously concerned that products are designed and manufactured for the markets. So we’re building facilities here -- a design center and test track in Irvine, a new technological center in Michigan, and, of course, our new factory in Montgomery, Alabama.

M: That’s a major investment for the future of the brand, isn’t it?.
BC: Most assuredly – distribution is the key for everyone … not just for sake of expediency, but also the types of models consumers want. The investment will pay off in our order to delivery process. Dealers can stock and sell the right cars with market driven decisions rather than production driven conclusions. We reduce dealer expenses in terms of their inventory carrying costs, and make our through-put a heck of a lot faster. We can build more for the marketplace.

M: How important are you to Hyundai?
BC: We’re 25% of the action. So if we cough, they are interested in seeing how we’re doing.

M: Business is good, but are there other goals and challenges for the future?
BC: Our consumer awareness level and consideration levels are low for the Hyundai brand. We asked our parent company to up the ante is far as our spending levels for advertising. We’re rolling the dice with some pretty big investment dollars. It’s almost a hundred million dollar launch … and we’ve never, ever spent that much.

M: Do you feel this investment will help attain the 1 million vehicle sales goal?
BC: If we don’t build consideration or awareness over the next year or two, then the strategy was wrong. We are hoping that’s not the case. A million is pretty strong. Nissan just passed this and that’s a great job. But a few years ago Nissan didn’t think a million was in their foreseeable future. Very good products, great quality, new product segments and strong dealers will help us get in that direction to sell one million vehicles.