Trends in Global Automotive Sales and Leasing

Can this mark Hyundai Motor Company walking out of the shadow of its stronger Japanese rivals Toyota and Honda and ushering in a new era? It's too early to draw conclusions. First, Hyundai's sales surged by 22% in January 2008, and much of this recent surge can be attributed to that. The company also launched large-scale discount promotions. The promotion funds for its Sonata sedan, Santa Fe SUV, and other models reached $2,611 per vehicle, about three times as much as a year ago. Faced with massive inventory from its sprawling factory in Montgomery, Alabama, Hyundai significantly expanded production there and sold cars to leasing companies. About 30% of the 24,500 vehicles Hyundai sold in January this year went to bulk buyers, transactions which were practically profitless.

Hyundai can sustain car sales at low prices for at least some time. Its operating condition is far better than that of its Detroit counterparts. Moreover, the weak Korean won has added to its advantage. In the past year, the won has depreciated nearly one-third against the dollar, allowing Hyundai to make more profits on every car it sells in the U.S. market. On the other hand, due to the yen hovering near its highest level in 13 years, Toyota's and Honda's profits have been erased. According to estimates by brokerage Korea Investment & Securities, more than half of Hyundai's projected $1.5 billion profit in 2009 comes from favorable exchange rate advantages. CEO Park Kyung Min of Hangaram Investment Management in Seoul said: "The currency trend is a godsend for Hyundai."

This Korean automaker used a significant portion of its unexpected windfall for its carefully planned marketing campaign. On January 3, the company launched a program allowing cash-strapped consumers to return their cars and erase their loans without affecting their credit ratings. This drew considerable attention from Detroit. Ford's marketing chief James Farley said: "To restore consumer confidence, all of us in the industry need to be more creative than ever before."

However, Hyundai's counter-cyclical move could backfire. If the company does not reduce bulk sales, the resale value of its cars may be weakened because leased cars typically enter the used car market within two years. Moreover, once the won begins to stabilize and strengthen again, high marketing costs will erode its profit margins. A single month of impressive performance is not enough to prove that Hyundai's model is correct.

In January, U.S. auto sales plummeted to their lowest point in 27 years, dragging down the Detroit Big Three automakers in recession and even the mighty Toyota. However, one automaker stood out — Hyundai Motor, once synonymous with affordability. In a month when almost all automakers struggled, this South Korean company achieved a 14% increase in sales.

To attract more American attention, Hyundai delved deep into consumers' homes with heavy spending. The automaker invested over $100 million in three commercials aired during the Super Bowl. One ad featured a couple lavishing praise on the new Genesis, which won the prestigious North American Car of the Year award at the Detroit Auto Show. The company also co-produced TV shows with Hollywood celebrities and bought out airtime during the Oscars after Ford and General Motors exited. Joel Ewanick, Hyundai's head of U.S. marketing, said: "Even in tough economic times, stepping on the gas pedal is crucial for us."

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