Despite timing, Hyundai enters luxury market

updated 7:42 p.m. ET Aug. 20, 2008

BARTON HILLS, Michigan - They admit the timing isn't great to bring out a big luxury car to compete with BMW, Lexus and Mercedes, but Hyundai Motor Co. executives are hoping the new Genesis sedan will catch on with a specific group of U.S. buyers.

"Confident nonconformists," said John Krafcik, vice president of product development for Hyundai North America. "They're folks who don't typically need the social badge of a premium brand. They're confident in themselves and in their own skin."

Conformist or not, there were far fewer luxury buyers out there in the first seven months of this year due to high gas prices, tighter credit requirements, economic uncertainty and declining home values that have cut into the typical buyer's net worth.

Luxury car sales are down nearly 15 percent from the same period last year, and industry analysts say it doesn't look like recovery is coming anytime soon. In addition, leasing, used by about half of U.S. premium vehicle buyers, is getting more difficult and likely will further cut into the market.

Enter the Genesis, which started hitting showrooms in small numbers at the end of June.

"The timing isn't the best," said Aaron Bragman, an auto analyst with the consulting company Global Insight.

Yet Krafcik said the Genesis, which was painstakingly engineered to be lighter, quicker, quieter and handle better than most competitors, should be able to attract buyers in a tough market due to its price, features and performance.

A six-cylinder Genesis has a base price of $32,250, with the soon-to-arrive V-8 starting at $37,250, excluding freight. That's at least $10,000 less than high-end competitors, but more than the price of what Hyundai considers its primary competition, cars like the Pontiac G8 ($26,910 with a V-6) and Chrysler 300 ($25,150 also with a V-6).

Analysts say the Genesis is competitive with even Mercedes, BMW and Lexus, with high-quality materials and great driving dynamics. But Bragman said it doesn't have the prestige of the high-end brands that luxury buyers often seek.

"It all does come down to the badge," said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates. "How much will the Hyundai badge deter buyers who want a premium vehicle?"

Volkswagen, Bragman said, failed when it tried to enter the luxury market with the $70,000 Phaeton earlier this decade, and South Korean-headquartered Hyundai faces the same brand-image obstacle. The Genesis will be assembled in Korea.

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