Hyundai Equus. Can Hyundai succeed with a D-class model?

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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.

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29 Responses to “Hyundai Equus. Can Hyundai succeed with a D-class model?”

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  23. Cameron says:

    Joe, thanks for your comment. Those people who don’t think that Equus will make it are kidding themselves. MB, Lexus and BMW should be concerned.

  24. Joe says:

    I am a prior owner of the BMW 750LI and Lexus GS 350. In my extended test drive of the Equus, I couldn’t believe the power, luxury and everything compared to other brands. I have test drove and looked at about every other car out there and couldn’t justify the spending of another 80-90k on a car again.

    I just drove the equus and placed an order for it 2 days later. I’ll keep you updated, but at this point Hyundai is heading in the right direction with this car and the dealer was all too aware on how to treat an Equus customer. I read somewhere the target sales in the US for 2011, was around 2000-3000 units. Well with the numbers and interest i have seen thus far, with little to no marketing, My guess is they move in excess of 7,500 units this year. If they don’t, the only reason would be there inability to meet the demand.

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  26. Cameron says:

    I agree with you that about the dealer experience. These buyers don’t need the Tier 1 Taj Mahal, good Wi-Fi in a clean comfortable environment will carry the day. I do think that even knowledgeable buyers like you, want to know they’re dealing with knowledgeable people so I do think that Hyundai needs to get the dealer staff into training. But none of that has to do with creating a “Tier 1” environment, it has to do with servicing the needs of the Equus target buyer which is not the traditional Tier 1 customer.

  27. JC says:

    I am particularly anxious to drive an Equus, but am not sure the “value-oriented” buyers that will consider this car care much (or expect much) from the dealership experience – that’s my perspective about dealers, anyway. I will know more about the car than anyone at the dealer before the car arrives. The biggest challenge for Hyundai is going to be the narrow price gap between this car and others (Jag XF, Infiniti M for example) that are more likely to be on the short-list than 7-Series and S-Class. Frankly, the gap is small. An EXTREMELY attractive lease is critical, because few will be purchased. Another challenge for Hyundai will be the very limited dealer availability when someone does have enough interest to take the next step of actually going to a dealership to see/drive one. With regard to the variations on this car, I suspect there will be little/no interest in the 4-seat version of this car, and I, for one, will wait for the 5.0L engine to be offered next Spring.

  28. Cameron says:

    Michael,
    Thanks for commenting. I agree volume in this rarified piece of the luxury segment is an issue. i think that is one of reasons Audi has found it so difficult to make progress. The good news for Hyundai is two-fold: the $55K price point and the fact that they don’t have to sell a ton of them. Krafcik was quoted that he needed to sell just 7000. At that price point I think they can do it, they’ll source volume from both the d-class and the c-class.

  29. Michael Elkisch says:

    Cameron,

    I totally agree with your position on the future success of the Equus. It’s the “showroom experience” that will make or break this vehicle. I do question whether there is enough volume in this grouping which is why I believe Hyundai defers to set-up a a separate channel. I cannot lose sight of VW’s failed Phaeton which the Equus hopes to capitalize off. I will acknowledge times are different now, but remember VW tried the Phaeton in good times and failed so I keep asking myself why will this work in a slower growth era. Tier 1 buyers will not trade down, Equus must survive by trading people up. A tough task today.

    Cheers,

    Michael

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