BEIJING (Reuters) - South Korean automaker Hyundai Motor Co (005380.KS) appears set to launch a standalone global premium product line-up, to be called Genesis, as it seeks to boost profitability which is being squeezed by a strong won currency.
Hyundai is expected to announce the move as early as Wednesday, three people close to the company said.
The maker of the Sonata midsize sedan and Santa Fe crossover sport utility vehicle (SUV) plans to launch Genesis as a separate global brand, though the line-up is likely to be sold through the existing Hyundai-brand distribution channel – at least for now, said one of the knowledgeable individuals.
Hyundai launched a luxury midsize sedan called the Genesis in 2008, as well as a related coupe model. It later added a remodeled Equus as a flagship sedan to that upscale line-up.
Those cars will form the core of the Genesis line-up, with a midsize SUV to be added by around 2019, the three individuals said. The Equus would likely be renamed.
“A small line of upscale products is going to be sold under the Genesis brand name. It’s not a physically separated brand with its own channel,” one of the knowledgeable individuals told Reuters, adding Hyundai, for now, thinks that setting up a separate channel of Genesis stores carries too much risk.
The planned move would go some way to fulfilling Hyundai Chairman Chung Mong-koo’s long-held ambitions to take the automaker more upmarket.
Hyundai Motor declined to comment.
Hyundai decided around a decade ago not to set up a standalone upscale brand, but instead tested the water with the Genesis models.
At that time, external advisers cautioned Hyundai wasn’t ready to move to a standalone luxury brand, and should concentrate first on strengthening the core Hyundai brand.
A well-known Detroit-based product and marketing expert warned the Korean firm then that Japanese rival Toyota Motor Corp (7203.T) spent around $5 billion to build its Lexus luxury marque from scratch, and took a decade to break even.
Now, though, Hyundai faces a profit squeeze from a strong Korean won KRW= that eats away at revenue on cars sold outside Korea - about 75 percent of the company's sales.
There is also tougher competition in its home market from German luxury brands such as BMW (BMWG.DE) and Audi (NSUG.DE), said one of the knowledgeable individuals, none of whom wanted to be named as they are not authorized to talk to the media.
Many in the automotive industry believe sales of luxury models will grow faster than the overall market - and generate bigger profits than the mass market cars Hyundai specializes in.
The high end is a crowded marketplace, however.
Fiat Chrysler’s Alfa Romeo brand (FCHA.MI)(FCAU.N), Cadillac (GM.N), Lincoln (F.N), Infiniti (7201.T) and Acura (7267.T) are all chasing aspiring luxury car buyers from the United States to China - markets where German brands are already strong. And there’s Tesla Motors (TSLA.O) now, too.
Ko Tae-bong, industry analyst at HI Investment & Securities, said Hyundai had caught up with the global industry with its “value for money” cars, and it was now time “to jump to the next level.”
“It’s about the profitability. Hyundai is well known for value for money, and customers will buy cars based on that. Selling expensive luxury cars can boost its sluggish profits growth,” Ko said.
According to two of the knowledgeable individuals, however, some of Hyundai’s U.S.-based sales executives are concerned the company may be rushing into launching a standalone premium brand. They think headquarters may not have “thoroughly thought through the move,” said one of the individuals. “Some are not very happy.”
“Creating a new brand from the ground up ... you’d have to be very thoughtful and measured. All those questions have not been fully answered,” he said.
Reporting by Norihiko Shirouzu, with additional reporting by Sohee Kim in SEOUL; Editing by Ian Geoghegan