Stabilizing Profits for Recession Surviving Auto Dealers

Story first appeared on The Detroit News -

Innovations in retail and outlet upgrades are hot topics for discussion at annual convention

As auto sales have come roaring back from the recession, dealers across the country are seeing profits stabilize and in some cases improve, as many continue to upgrade their buildings and customer waiting areas and amenities.

Many of the nation's 17,540 new car dealers are gathering here this weekend for the annual National Automobile Dealers Association Convention and Expo.

Dealer renovation programs and future innovation will be hot topics among the more than 20,000 dealers, manufacturers and other auto industry officials expected to attend.

"Dealers that are in business today are strong and stable," Terry Burns, executive vice president of the Michigan Automobile Dealers Association, said in an email.

"Many have upgraded their facilities, retooled their service departments, focused on their customer experience and look forward to a great 2013."

In 2012, automakers and their dealers sold about 14.5 million vehicles in the U.S. NADA Chief Economist Paul Taylor expects consumers to buy or lease more than 15.4 million new vehicles this year across the country.

Last year, new-car dealers in Michigan sold 486,372 cars and trucks; that's up 5.6 percent from 460,628 sold in 2011, and up 18.2 percent from 411,342 vehicles sold in 2010. The figures still pale in comparison to what Michigan's dealer body sold in 2007, before the industry collapse and the large reduction of dealerships among the Big Three.

Michigan has about 650 new-car dealers. Burns said he expects a "little contraction" among them this year, due to consolidation of brands.

Nationally, some automakers plan to add new-car dealerships in 2013, including Kia Motors America, which expects to add 10, and Volkswagen Group of America Inc., which plans to add more than 15. In the past year, Chrysler Group LLC's Fiat brand has added about 60 dealerships across the country to grow to 201 locations. Fiat executives have said they would like to add more dealerships in select cities.

Other car companies aren't increasing dealership numbers, but they are helping dealers improve facilities to retain loyal customers and gain new ones.

In a recent interview, Hyundai Motor America President and CEO John Krafcik told NADAFrontPage.com, a website run by the dealer group, that the company does not plan to add to its 820 dealerships. Instead, Krafcik said Hyundai has focused on boosting customer satisfaction; more than 340 dealers have completed renovations.

Automakers from Chrysler to American Honda Motor Co. Inc. and Toyota Motor Sales U.S.A. Inc. have facility upgrade programs. Many of those programs have been in progress for several years.

Volkswagen, which has more than 600 VW dealers and more than 250 Audi dealers, said it plans to complete 45 modernist "White Frame" facilities this year. Some are new construction, others are renovated dealerships. More are in the pipeline for next year. More than 100 Volkswagen dealers are spending $450 million on renovations from 2011 to 2013, while Audi dealers are spending $206 million on renovations from 2009 to 2013.

Doug Fox, owner and president of Ann Arbor Automotive, which includes five Asian brands, renovated his Acura store about seven years ago and his Nissan store five years ago.

"We are in the process of doing an image store for Kia, and we're certainly going to be considering doing one for Hyundai in the next couple of years," he said this week in a phone interview, adding sales at both his Kia and Hyundai franchises each were up about 10 percent in 2012. Fox said he hopes to complete the Kia redesign by the end of the year; Kia will contribute a portion of the cost.

"Certainly, a consumer likes to come into a nice, clean, fresh, contemporary building," Fox said. "And I think in our case, the buildings we're talking about are definitely in need of refurbishment."

More than 70 percent of Ford Motor Co.'s Lincoln Motor Co. dealers in the top 130 U.S. markets have agreed to renovation programs that include creating a "new sales and service experience for future Lincoln owners," Ford spokeswoman Elizabeth Weigandt said in an email.

About 25 percent of dealers in those top markets will have renovated facilities this year, Weigandt said.

General Motors Co. expects almost all Chevrolet, Buick, GMC and Cadillac dealers will have a new look by 2016. The Detroit automaker, which reduced its dealerships over the past year by about 50, said about 92 percent of its 4,355 dealers have agreed to participate in its renovation program.

Russ Shelton's dealership in Rochester Hills is one that has the new look after he spent more than $2 million gutting the facility. He added more square footage to his showroom, new furniture and energy-efficient lighting.

GM is defraying some of the cost, he said.

Shelton, in a phone interview, said he expects sales at Shelton Buick GMC will rise from about 650 to 700 annually to about 1,000 vehicles a year.

"I think 2013 is going to be a good year. All manufacturers are predicting big numbers."

Hyundai Paint Plant Fire

Story first appeared in The Wall Street Journal.

Hyundai Motor Co. said Tuesday the paint shop of its No. 1 plant in China was on fire earlier in the day and the company is looking into the fire's cause and how much damage occurred. It is noted that the number of Workers Compensation Insurance Quotes skyrocketed after this event.

Hyundai will use the paint shop in No. 3 plant for the vehicles produced in plant No. 1 for now.  According to a spokesman, the No. 1 plant has a one-month inventory of vehicles, so this disaster will not impact sales in China.

There were no casualties from the fire, however workers are concerned and are looking into Workers Compensation Insurance.

The No. 1 plant currently produces 1,300 units a day of the Accent subcompact, the Tucson sport-utility vehicle, the Elantra compact and the Sonata midsize sedan.

On top of No. 1 and No. 2 plants that have an annual capacity of 300,000 units respectively, Hyundai Motor plans to put the No. 3 plant into a full operation from July. The No. 3 plant's initial capacity is 300,000 units a year but it is scheduled to expand to 400,000 units to meet a rising local demand.

Separately, the company said it will begin commercial production at a new Brazil factory in November. Hyundai is building a factory with annual capacity of 150,000 vehicles in hopes of overtaking Ford Motor Co. as Brazil's fourth-largest car seller.

Test production will begin in September, Hyundai's press office said, with commercial production starting in November.

The Financial Times reported earlier Tuesday that production at the plant, located in Piracicaba, about 200 kilometers north of Sao Paulo, would start in September.

When plant construction began early last year, executives at the company said they expected Hyundai market share to jump to 10% of sales by the end of next year, up from about 3% currently.

Brazil last year raised taxes on foreign-made cars as part of an effort to combat a flood of imports. A strong Brazilian real, on top of already high labor and material costs, have eroded the competitiveness of Brazil's auto industry, while growing salaries led consumers to buy more elaborate and powerful cars than the basic models produced en masse in the country.

While the tax hike was questioned by companies that planned on building factories here--claiming that the high local-content requirements would be impossible to meet during the first few years of a new factory's operation—the government has made allowances in recent months for new factories.


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Housewife Turned Hyundai CEO Fights Billionaire Brother-in-Law

Bloomberg

 

A decade-long feud that split one of South Korea’s most powerful families now puts a former Girl Scout leader against the nation’s second-wealthiest man in a $2.5 billion fight for the country’s biggest construction company.

Hyun Jeong Eun, who jumped from housewife to head of Hyundai Group after the 2003 suicide of her husband, the favored son of founder Chung Ju Yung, is trying to rebuild an industrial empire splintered by family infighting, bad debts and an ill- fated effort to expand into North Korea. Against her is Chung Mong Koo, the founder’s eldest surviving son and chairman of Hyundai Motor Co., a separate business that is the nation’s largest carmaker.

The two go head to head this week bidding for a controlling stake in Hyundai Engineering & Construction Co., the cornerstone for the Hyundai empire before bad debts left it in the hands of creditors. Failure to win would not only dent Hyun’s plans to expand the group, it could cost her control of her biggest unit, Hyundai Merchant Marine Co., which is part owned by Hyundai Engineering, said fund manager Chang In Whan.

“Hyundai Group desperately needs Hyundai Engineering and they will push forward to make it happen as if their life depends it,” said Chang, who oversees equivalent to $9.4 billion of assets at KTB Asset Management Co. in Seoul, including shares in Hyundai Motor and Hyundai Engineering. “Hyundai Motor has the biggest advantage because the focus is going to be about who can come up with the money.”

Cash Pile

Hyundai Motor had 7.3 trillion won ($6.4 billion) of cash and assets equivalent to cash at the end of June, while affiliate Kia Motors Corp. had another 1.9 trillion won, according to financial statements. The combined cash and cash equivalents at Hyundai Group’s main units -- Hyundai Merchant, Hyundai Elevator Co. and Hyundai Securities Co. -- totaled 1.13 trillion won. The disparity is also reflected in personal wealth. Chung Mong Koo is worth at least $5.4 billion according to Bloomberg data. Hyun is worth at least $115.7 million.

The banks will auction off their 35 percent stake, worth at least 2.9 trillion won, with final bids due by Nov. 12. Hyundai Engineering shares have gained 3.4 percent so far this year.

“This is pretty much a fight between a whale and a shrimp,” said Cho In Karp, research head at Heungkuk Securities Co. “Hyundai Motor will most likely rise as the winner. The automaker is in a better position to raise money.”

Hyun was unavailable for an interview, said a Hyundai Group official who declined to comment further. A Hyundai Motor Group spokesman also declined to comment.

Hyundai Merchant Stake

The winner of Hyundai Engineering would gain its 8.3 percent stake in Hyundai Merchant, South Korea’s second-largest shipping company, which contributed 58 percent of Hyundai Group’s sales last year.

Combined with the 25.5 percent stake held by Hyundai Heavy Industries Co., the world’s largest shipyard, and the 5.08 percent owned by KCC Corp., founded by Mong Koo’s uncle, who tried to block Hyun’s succession, the total would almost match the 40 percent owned by Hyun and Hyundai Group, according to first-half financial statements from the companies. Another 5 percent is held by the shipping line and its employees.

“If Hyundai Group fails to buy Hyundai Engineering then the whole managerial control of the group’s unit could be challenged because of the shareholding structure,” Chang said.

Hyundai Merchant in turn is the biggest shareholder in 7 of the 12 Hyundai Group units, so loss of the shipping line could cause Hyun to lose control of the whole group in a domino effect, said Chang.

While Hyun may be in a weaker financial position to bid, she is appealing to the sentiment for Chung Ju Yung, who is widely respected in Korea for building the Hyundai businesses, and her late husband Chung Mong Hun, his chosen successor.

‘Defend It’

Hyundai Group started airing TV advertisements on Sept. 21 depicting the late Chung Ju Yung and Chung Mong Hun, that say: “it was everything to the father, it was everything to the son. Hyundai Engineering, Hyundai Group will defend it.”

That sentiment has its roots back in 1932, when a 17-year- old Chung Ju Yung stole a cow from his father’s farm in what is now part of North Korea and drove it to the south, where he sold it to start a business. In 1947 he set up Hyundai Engineering, which grew into a group making cars, ships, semiconductors and steel. The flagship company built the nation’s first expressway, linking Seoul and the port of Busan, and won the country’s first overseas construction order in Thailand in 1965.

Chung Ju Yung never lost his desire to reunite North and South Korea and during the famine in the North in 1998 he herded 1,000 cattle across the border, saying it was repayment for the one he stole. The stunt captured the public imagination and opened the way for Chung to set up the $463 million business in the North’s Mount Geumgang region. It also set the stage for the first summit between North and South in June 2000, when Kim Dae Jung traveled to Pyongyang to meet Kim Jong Il.

North Korea Tourism

The following year, Chung Ju Yung died at the age of 86 and Chung Mong Hun took over the mantle of the North Korean projects. Two years later, as relations soured with North Korea over its nuclear program, the younger Chung jumped from his 12th floor office window after being charged in connection with $450 million of illegal payments to the North.

Hyun became chairwoman and she too devoted much of her time to the North Korean tourism business, according to the group.

“I believe it’s my mission to rebuild Hyundai Group and continue on the North Korea projects started by the late Chung Ju Yung,” Hyun said in August 2004 on her website. “I will do my utmost to restore Hyundai Group’s earlier glory.”

The project around Mt. Geumgang, or Diamond Mountain, includes about 60 kilometers of the eastern coast. There are hotels, hiking trails, an 18-hole golf course, a spa, a cultural center, where a North Korean circus troupe performed, and a branch of Pyongyang’s “Okryu Restaurant” serving its signature “Pyongyang cold noodles.”

Political Climate

“Hyun pushed forward to get what she wanted, there was no room for compromise,” said Rhee Bong Jo, who first met Hyun in 2004 at the Mt. Geumgang resort when he was vice unification minister. “She had taken the lead in the North Korean projects and succeeded in resolving some issues and winning new projects.” In August last year Hyun met Kim Jong Il after helping secure the release of a Hyundai Group employee accused of criticizing the North Korean leader.

The political climate deteriorated after the South accused the communist regime of torpedoing its Cheonan warship in March, killing 46 sailors. The North denied the accusation and in April said it will seize some South Korean assets at the Mt. Geumgang resort and a find a new project partner to replace Hyundai.

While politics have wrecked the North Korean venture, Hyun did oversee a revival in the group’s other businesses. Since she took over, sales have almost doubled to 10.5 trillion won last year, led by affiliate Hyundai Merchant. At Hyundai Elevator, the country’s biggest elevator-maker, sales have doubled.

Sales Goal

In April this year, Hyun set a target of increasing the group’s sales to 70 trillion won in 2020 by strengthening its three main businesses -- logistics, finance and infrastructure.

“Acquiring Hyundai Engineering is something we cannot give up because it will be a positive source of impetus for the group’s future,” Hyun said in a speech to employees on Jan. 5.

Hyun, 55, was born in Seoul on Jan. 26, 1955, as the second daughter of four. Her father, a one-time employee of the Bank of Korea, became chairman of Hyundai Merchant after it bought out a shipping business he founded.

She majored in sociology at the Ewha Womans University and studied human development at Fairleigh Dickinson University in the U.S., according to her website.

Matchmaker

She met Chung Ju Yung at a ship christening ceremony in Ulsan in January 1975 and he instantly wanted her to marry into his family, according to a book published by Hyundai Merchant. A few months later, Chung Ju Yung arranged for Hyun to meet his fifth son, Chung Mong Hun, while he was on a short leave from military service. The two married in July the following year.

“I found out years later that it was the Honorary Chairman Chung Ju Yung that was the matchmaker,” Hyun said in an interview on her website.

After her marriage, Hyun became a housewife, bringing up her two daughters and a son and working as a director of South Korea’s Girl Scouts. She is on a charity committee in Seoul for the Red Cross and lists her interests as movies, especially European ones, and dancesport.

Her husband’s death catapulted her into a position where she was named among the World’s 100 Most Powerful Women by Forbes magazine in 2008 and 2009.

Overcoming Skepticism

“She has successfully turned herself from a housewife into a CEO, overcoming a lot of skepticism about her lack of work experience,” said Chang Pilwha, a professor in the department of women’s studies at Ewha Womans University in Seoul. “She has proven herself by overcoming difficulties one by one.”

Her husband took over the tourism and other North Korean projects after his father’s health deteriorated in 2000 and was named as the elder Chung’s successor that year over his older brother Chung Mong Koo, sparking what became known as the “rebellion of the princes.”

Mong Koo, chairman of Hyundai Motor since late 1998, accelerated a plan to spin off the automaker and its affiliates. Two years later, Hyundai Heavy, whose biggest single shareholder is sixth son Chung Mong Joon, also broke away from the group.

Chung Ju Yung’s oldest son died in a car accident in 1982 and his fourth passed away in 1990. The third son is honorary chairman of Hyundai Department Store Co., the seventh is chairman of Hyundai Marine & Fire Insurance Co. and the youngest is head of Hyundai Venture Investment Co.

Foreign Demand

Hyundai Engineering said in February it aims to boost overseas orders to $12 billion this year from $4.5 billion in 2009. Its net income climbed 22 percent to 456.6 billion won and sales rose 28 percent to 9.28 trillion won last year.

Failure to defeat her brother-in-law and gain control of the construction business may end Hyun’s dream of restoring Hyundai Group as South Korea’s leading business.

“She’s gone through a lot of difficult times since her husband’s death,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “But nothing will compare with the battle she is about to embark on.”

Chrysler Franchise Reborn As Hyundai

from My Desert

Robert Hulett, general manager of the 25-year-old Chrysler dealership that was one of 789 franchises to be shuttered in the Chrysler LLC meltdown across the United States, has reopened with a new fleet of Hyundai cars.

There'll be some familiar faces, too.

“We had about 75 employees at one point, and had to let just about everyone go'' over the summer as used cars were sold and a new franchise opportunity explored, Hulett said.

The city of La Quinta approved a temporary zoning permit for the dealer to operate Dodge City Pre-Owned Auto Sales in the interim. On Oct. 19, the service department reopened and the first fleet of new cars rolled in.

Four people in service and two employees in parts were rehired, Hulett said, along with three sales people and two business associates.

Mayor Don Adolph said it's great that the business was able to launch a new franchise.

“The city and our staff has been working with the dealers that are up there,” he said. “We don't want to end up with one car dealership. You need several of them in there to make this work.

“We're happy this is moving forward,'' he said. “It benefits the city and the dealers that are in the auto center.”

As of Wednesday, some 45 new cars have been prepped and are on the ground.

“The signs are going up now,'' Hulett said, and floor traffic has returned to the franchise.

Within a week, the dealership, owned by Kent B. Sowell, should have 80 new Hyundai vehicles plus 60 used cars on the lot.

“It feels great,” Hulett said as paperwork was being prepared for the dealership's first probable new car sale — a 2009 Elantra Touring vehicle.

“Last year, the auto industry was very challenging. Every day it got worse and worse — hitting rock bottom when Chrysler told us we lost the franchising rights,'' Hulett said. “Now, the economy is starting to show signs of recovery. Hyundai is gaining market share. It's a great product with a great warranty, and it's a company that's growing.

“We feel good about them, and they feel good about us.”