GENESIS PLANS TO BREAK FROM PARENT HYUNDAI

Hyundai's fledgeling Genesis marque wants to leave the nest.

The brand plans to announce a new retail strategy for the US this month that will accelerate its separation from the Hyundai marque and significantly cut the number of dealerships authorized to sell Genesis models. 

The transition, that was only meant to happen in several years, will most likely be a messy and costly one for Hyundai and the called Genesis dealers. The cut-off comes less than two years after Hyundai announced the creation of the Genesis brand, nearly a year after it officially put the G80 and G90 sedans on the market and just before the launch of a new vehicle, a BMW 3-series fighter called the G70.

It will require a very delicate move by Hyundai Motor America to protect relationships with cast off dealers who will retain their Hyundai franchises after the dust settles.

"We don't see a path forward without a good, strong dealer network that's also profitable," Genesis General Manager Erwin Raphael told Automotive News. "And we sometimes have to make very difficult decisions in the short run in order to ensure that we care for our... dealers in the long run."

According to Genesis, they plan to have the framework in place by the middle of next year.

The plans come amid a debacle in Louisiana, where Hyundai Motor America ground all sales of Genesis vehicles last month, after allegations from the state's Motor Vehicle Commission that the automaker and the dealers lacked proper licenses to sell vehicles under the new brand. Dealers said that, a month later, Hyundai had outlined plans to trim its Genesis network in the state – from thirteen to just two dealers.

According to Raphael, the automaker has nearly completed the necessary paperwork to put it in good standing with the commission – attributing the problem to a hasty ramp-up.

This transition creates a tangled web. 

Genesis' retail network is a bit of a knot as a result of its awkward start as a Hyundai nameplate and then a distinct brand that absorbed two Hyundai luxury models. Hyundai allows any of its 835 dealerships nationwide to sell the Genesis G80 sedan – this requires them to create a showroom-within-a-showroom for the Genesis brand.

In the original plan, Genesis-only stores were to phase in two or three years after Genesis started selling vehicles in August 2016. Genesis had originally planned to use them concurrently with the showroom-within-a-showroom setup, along with some dealerships that had separate facilities for Hyundai and Genesis but shared service centres. 

These Hyundai dealers selling the G80 were supposed to then be phased out when the next generation of the car arrived in 2019.

However, this plan has been updated and moves that timetable forward by one or two years. It will focus solely on separating the two makes, though details haven't yet been made available to dealers, according to Raphael. It will change from the store-within-a-store approach to a distinct Genesis presence. 

Hyundai dealers will be allowed to apply for Genesis franchises, with priority given to locations in and around more urban areas. 

Only full Genesis franchises will be able to do warranty repairs on Genesis vehicles. This is a condition that's certain to be a sticking point with dealers who had expected to be able to do factory-paid warranty work on Genesis vehicles under the original plan.

"For this brand to really survive and thrive, and for us to develop the culture within ourselves and within our dealer network to support and take care of these customers, we do in fact have to expedite our process of separating our brands," said Raphael.

Raphael would not say how many stores Genesis wanted, though the number is expected to be smaller than the 352 that carry the G90, according to several Hyundai dealers. 

Genesis has also retained outside legal counsel to help it extricate itself from agreements with dealers who invested time and money in the Genesis brand. The automaker has also hired a trio of outside consulting agencies to help it properly set up the new dealer plan.

According to Raphael, the decision to speed up Genesis' separation from parent Hyundai came after feedback from Genesis dealers who suggested that a smaller retail network was necessary to maximize profits. He also cited data from customer clinics showing that buyers did not like the idea of shopping for a $50,000 or $60,000 luxury vehicle at a Hyundai showroom among Elantras and Accents.

Although Raphael said the timing of the new strategy was not tied to Genesis' first new vehicle launch of the G70 sedan (expected to debut this year and be on sale in the US in 2018), it still posed a sensitive problem.

Trimming the dealer network has been a long-term goal for Genesis execs, however, while most Genesis dealers agree on the need for fewer storefronts, no one wants to give up the franchise.

This raises the questions of why the company required retailers to spend thousands of dollars on dealership improvements, new hires and training, service and parts upgrades as well as marketing – only to have to scale them back later on.

The answer to this question, according to Andrew DiFeo, chairman of the Hyundai National Dealer Council, was haste in getting the luxury brand off the ground. 

"The directive to launch the brand trumped that," said DiFeo (whose stores carry Genesis vehicles). "At the time, this was maybe the easiest, least-painful route in the short term. But it affected the brand negatively in the long term."