Hyundai Tries Big Incentives To Keep Alabama Plant Humming
February 26, 2008

By Dale Buss

Hyundai has been cutting production at its nearly new assembly plant in Montgomery, Ala., and greatly beefing up incentives to keep the plant humming.

Hyundai cut daily production at its sole U.S. assembly plant by about 20 percent late last year, AutoObserver has learned, and has been turning to monster sales incentives to try to keep the three-year-old plant producing Sonata sedans and Santa Fe SUVs at the current lower rate. Hyundai also has used hefty incentives to clear out 2008-model Sonatas to make room for the 2009 model it's just begun building in Alabama.

Last summer Hyundai had hiked production to as many as 1,250 Sonatas and Santa Fes a day, which represented about 95 percent of the plant's 300,000-unit annual capacity, spokesman Robert Burns told AutoObserver. But in November, Hyundai began a cutback to the current rate of around 1,000 vehicles a day. Burns declined to specify the portion of production that is represented by each vehicle.

Record Sonata Incentives

Whopping incentives offered by Hyundai for the Sonata in December — including the choice of either zero-percent-APR loans or cash rebates — created such rarefied air the automaker cut back its offer for the new year. December sales of nearly 25,000 old-model Sonatas had helped clear dealer lots for the just-introduced 2009 upgrade of the vehicle. But then Sonata sales tumbled in January. So even before the month was over, Hyundai reestablished the zero-percent loans.

Sonata’s December offers averaged $4,218 in Total Cost of Incentives (TCI) per vehicle, a proprietary formula calculated by Edmunds.com. That is the highest number ever for Sonata and, considering the number of cars Hyundai sold, ranked the model fourth in terms of the overall TCI for any vehicle in December. Only three full-size pickup models — a segment in which huge incentives have prevailed for many months — ranked higher.

“Sonata even ranked No. 52 in December’s per-vehicle TCI for all models, which is interesting given its price point,” said Jessica Caldwell, an Edmunds.com sales analyst. The list prices for the 2008 Sonata ranged from $17,670 to $24,170, according to Edmunds.com. “It nearly had the same incentive as a BMW 5-Series.”

Facing Santa Fe's Challenge

Hyundai also faced up to stalling sales volume for Santa Fe last fall. August sales of 10,570 Santa Fes represented a 2007 peak, but Hyundai sold only 7,374 Santa Fes in November. So in December it offered incentives with a TCI of $2,748, according to Edmunds.com, up nearly $900 from November's TCI level, sales surged to 9,100 units for the month.

But when Hyundai reduced Santa Fe incentives as well, to a TCI of just $767 in January, sales also slumped, registering just 2,716 for the month — Santa Fe's lowest volume since April 2006.

So although Hyundai lately has been hyping the upcoming introduction of its premium Genesis sedan, its attempts to keep the Montgomery plant humming may still rank as more important. When it opened in 2005, the company's first U.S. plant was hailed as the biggest test yet of Hyundai executives' oft-stated, ambitious plan to emulate eventually the success Toyota Motors has forged in the North American market.

Sonata Milestone

Sonata has been Hyundai's biggest focus so far. In December, Hyundai sold its 1 millionth Sonata since the car’s introduction in 1989 as Hyundai’s second nameplate. December Sonata sales of 24,872 more than doubled year-earlier sales of 10,149. Initially in January, Hyundai eliminated the 0 percent-financing part of its incentive package, reducing TCI to $1,999 per vehicle — and Sonata sales slumped to 4,587 units for the month, as Hyundai reapplied for the financing incentive.

For all of 2007, Sonata averaged a healthy $3,032 in incentives, according to Edmunds.com data.

Actual Hyundai Sales Numbers:
Model	Dec-06	Dec-07	Δ fm 2006	CY2006	CY2007	Δ fm 2006
Accent	2,759	1,945	-814	34,735	36,055	1,320
Sonata	10,149	24,872	14,723	149,513	145,568	-3,945
Elantra	7,444	3,757	-3,687	98,853	85,724	-13,129
Tiburon	784	601	-183	17,382	14,073	-3,309
Santa Fe	8,282	9,102	820	63,931	92,421	28,490
XG350/Azera	2,479	1,597	-882	26,833	21,948	-4,885
Tuscon	3,669	2,962	-707	52,067	41,476	-10,591
Entourage	1,799	429	-1,370	12,206	17,155	4,949
Veracruz	0	1,222	1,222	0	12,589	12,589
TOTAL	37,365	46,487	9,122	455,520	467,009	11,489

Scenario: If Sonata sold the same # of units in December 2007 as December 2006
Model	Dec-06	Dec-07	Δ fm 2006	CY2006	CY2007	Δ fm 2006
Accent	2,759	1,945	-814	34,735	36,055	1,320
Sonata	10,149	10,149	0	149,513	130,845	-18,668
Elantra	7,444	3,757	-3,687	98,853	85,724	-13,129
Tiburon	784	601	-183	17,382	14,073	-3,309
Santa Fe	8,282	9,102	820	63,931	92,421	28,490
XG350/Azera	2,479	1,597	-882	26,833	21,948	-4,885
Tuscon	3,669	2,962	-707	52,067	41,476	-10,591
Entourage	1,799	429	-1,370	12,206	17,155	4,949
Veracruz	0	1,222	1,222	0	12,589	12,589
TOTAL	37,365	46,487	-5,601	455,520	452,286	-3,234
Hyundai would have not been able to report "Ninth Consecutive Year-over-year Sales Increase" without the incentives.

Source: Edmunds.com

Part of the Plan

The lofty December incentives largely were intended to clear out inventory of the '08 Sonata to make room for the '09 version, introduced at the Chicago Auto Show earlier this month, John Krafcik, Hyundai vice president of product development and strategic planning, told AutoObserver.

But Krafcik said the company didn’t anticipate the success of the incentives package on the existing Sonata, which was launched in May 2005 as a 2006 model. “We’ve never done a big zero-APR program, and it blew us away in efficiency and success,” Krafcik said.

Promising '09 Sonata

Even more important, he said, is the December surge helped dealers make room for the ’09 model, which he predicted will be a big seller. That’s mainly due to an improved interior, Krafcik said; the exterior received a minor face-lift. Inside, enhancements include a new instrument panel and center console, with iPod and USB auxiliary inputs and a new touch-screen navigation system.

“The interior seemed to be the point where we should have had the bar a little higher,” he said. “We thought it made more sense to wow (consumers) once they got inside the car.” Actually, Krafcik added, Hyundai executives believe the revised ’09 Sonata interior “is much better than the most-expensive interior” of the new Chevrolet Malibu.

The car also boasts a new version of the DOHC 2.4-liter four-cylinder engine, with output boosted to 175 horsepower and torque to 168 ft.lbs. Fuel economy improves by one to two miles a gallon depending on transmission. Hyundai has similarly enhanced the 3.3-liter V6 engine. The suspension is stiffer.

“There’s no question (the new Sonata) is going to help us increase volume” as well as transaction prices, Krafcik said.

For 2008, he said, Hyundai’s overall sales goal is 500,000 units, after posting sales of 467,000 units for 2007. “We could have easily achieved 500,000 (in 2007) if we had sufficient Elantra and Accent volume,” he said. Instead, Hyundai sold Accent and Elantra with low-for-the-segment incentives and actually raised transaction prices because of low supply.

“For us,” Krafcik said, 500,000 units is “a psychological point. It’s a nice round number.”

Bill Visnic contributed to this story.

Photos by Hyundai
1 - 2009 Hyundai Sonata
2- 2008 Hyundai Santa Fe
3- 2008 Hyundai Sonata interior

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