The D-segment of the luxury market is tough. The best luxury manufacturers in the world bring their best technology, design and engineering to the table and the result is the world’s best 4-door sedans: BMW 7-Series, Mercedes-Benz S-Class, Lexus LS, are perennial best sellers. It’s tough to break-in, Audi has struggled for years to build volume in the segment with its A8 despite having what many would say is the best product.
So what makes Hyundai think they can introduce the Equus into this rarefied air and succeed?
Let’s get one thing out of the way. From a product perspective, the Hyundai Equus will be a very able competitor to the best luxury sedans in the business. Hyundai has demonstrated that they build exceptional quality cars at multiple price points, the most recent being the Genesis, a near to mid luxury entry. The Equus is already getting good reviews and at $55,000 will offer D-class luxury at a very reasonable price.
The issue for Hyundai is not the product or the price.
Already critics are saying Hyundai cannot compete with the Tier 1 luxury marques; Mercedes-Benz, Lexus, BMW and arguably Audi. Hyundai announced that they would not open a separate luxury franchise; instead they will sell the Equus in their existing showrooms. This announcement was met with cynicism. Traditional thinking says that a Tier 1 luxury brand needs its own stand-alone franchise/stores, and that luxury customers, particularly in the D-segment, want to be coddled in Taj Mahals built as shrines to their brand of choice. Luxury customers certainly don’t want to be shopping for or servicing their cars in the same place as mass-market customers…e.g. a Hyundai dealership.
This conventional thinking assumes that the only way Hyundai can succeed in the luxury segment is to follow the Lexus model and become a Tier 1 luxury brand. I think Equus will be a success and will re-write the rules of D-Class luxury. Hyundai won’t be a Tier 1 luxury brand; they will be a new form of luxury.
Americans’ perception of luxury and prestige is changing. Some argue that the near collapse of the financial markets and the recession have changed our sensibilities forever. Last year, the Wall Street Journal reporter Matthew Dolan was interviewed and commented that Americans have moved from “conspicuous to careful consumption.” He went on to say that “the luxury of the past is not the luxury of the future.”
Hyundai will certainly take advantage of these changing sensibilities but that’s not the only reason they will succeed. There has always been a segment of the car buying population that wanted the engineering and quality of the luxury segment but wasn’t interested in the “prestige” image. These folks didn’t want to overtly make a statement; they were looking for something subtler, something that made sense to them. The traditional trappings of Tier 1 do not drive them, they are looking for a quality product and a reasonable value. For years they bought Audis and thought that they had a made a “smarter” choice than their peers who bought Mercedes-Benz, BMW or Lexus.
Changing perceptions of luxury and an ample number of people interested in a quality luxury automobile but not in the “badge” marques will offer more than enough opportunity for the Equus. This combined with Hyundai’s increasing reputation for quality, some decent marketing and reasonable pricing should be more than enough to gin up floor traffic for the Equus.
But that’s where the battle will begin for Hyundai and the Equus, it will either succeed or fail based on what the customer experiences as they walk into the showroom.
These consumers are not the traditional Tier 1 D-segment customers and they won’t worry that they are going to a Hyundai store to look at a $55,000 luxury car. I think they’ll get beyond that fact that their luxury car is in the same showroom with a model that starts at less than $10,000. I don’t think they’ll mind sitting in a less sumptuous lounge while they’re waiting for service and probably won’t care if espresso isn’t available.
What will make or break the deal is how they are treated when they walk in the door. If they are greeted by a knowledgeable professional who is well trained and can accurately sell the virtues of the Equus versus its competitors in an interesting and informative way, that will be a good start. If the showroom is bright, uncluttered and the product conveniently on display that will help. If they see a customer lounge that is comfortable and clean with free Wi-Fi and a decent high definition television that will create the right impression. In short, if they see a customer focused environment, staffed with quality people who are focused on the customer’s needs, I think they’ll fore-go the usual Tier 1 frills in favor of a top-notch vehicle at a reasonable price delivered and serviced by competent pros.
The only question for Hyundai is can their dealer body deliver that customer experience. Recently I was at my local Hyundai store with my son who was in the market for a car. The salesman that helped us knew little about his own products let alone the competition. All he talked about was the 10 year, 100,000 mile warranty, the Assurance program and the price. We had to go outside to see the car we were considering and there was no offer of a test drive. That won’t fly with a D-segment car. The dealers are going to need to significantly up their game.
If they do, I think Hyundai has a good chance of succeeding with the Equus and possibly becoming Mathew Dolan’s “luxury of the future.” But it’s not about “becoming” Tier 1, nor is it about providing the traditional trappings of “prestige” automotive brands. It’s about recognizing that there’s a new sensibility, a new perspective on luxury and meeting the expectations of these customers. It’s a great opportunity to re-invent a piece of the luxury segment.