“TRADITIONAL DEALERIZATION” DOESN’T WORK

With its VP of Sales saying, “Traditional dealerization doesn’t work anymore,” Hyundai is taking steps to reward its best dealers with more territory, giving them the chance to move into more markets and “dot the regions with offsite storefronts, used-car lots, service centers, quick lube shops, even traveling roadshows,” according to Automotive News.

“We want to take our really good dealers and give them additional points,” Hyundai’s Dave Zuchowski said. “We want to try to have dealers take control larger market areas. We are trying to be creative.” He added “We think there are some really cool, nontraditional approaches, which are going to help (dealers’) return on investment.” As an example, Zuchowski said instead of having four dealers in one sales region, that region might be consolidated with one dealer “but maybe not with four different, full-blown facilities.”

Hyundai had been pursuing an effort to increase the number of exclusive stores, which currently account for 53% of the 750+. The new idea “is being driven specifically in high-cost markets like California, where we have some opportunities and where we have a lot of open points,” Zuckowski said. “It is very difficult to be a stand-alone Hyundai dealer in California. It has the most expensive real estate, media costs, employees’ cost, advertising, everything.”

Auto News says Hyundai may buy out highlighted stores to help dealers, it sees as more promising—in order to take control of expanded territory. It might also lease unused local store space. “You can get into a lot of empty Kmarts and empty buildings,” Zuchowski said. “We are looking at picking up short-term leases on buildings for the dealers. If it works we’ll lock up something more long term.”

Hyundai did not meet its sales goals for 2007, but Auto News says that setback has not stopped its executives from setting another aggressive target for this year. After several years of strong growth, the brand was flat in 2006 and up 2.5% last year, falling far short of its goals (467,000 units against an original target of 555,000, but still outpacing the overall market). It’s targeting 500,000 in sales this year. “Our rallying cry is 500,000 units, regardless of what the industry is doing,” Zuchowski said.

Like some of its competitors, Hyundai is changing its dealership bonus plan--last year almost a third of dealerships got no bonus from the company because the individual goals for their stores were set too high to have a real chance of being met. The new plan is a “stair-step” incentive that’s the same for all dealerships. The store that sells 4-29 units a month receives $250 per vehicle sold; 30-54 units bring the dealer an additional $500 each; and, 65+ units a month are worth $750 each to the dealership. Dealers that have exclusive stores and work with Hyundai’s captive finance arm receive an additional $100 a unit in floor-planning assistance.

Of course the big initiative for Hyundai this year is rebuilding dealer associations. Dealers will contribute $150 per vehicle ordered and the company will kick in $80 million nationally to the associations. And for tier 3 ads, the company will contribute $300 per vehicle ordered.