Hyundai Motor and its sales arm in Canada do face challenges here and around the world, not the least of which is a chunk of the buying public that is at best skeptical and at worst dismissive of Hyundai, its products and its sales and distribution activities.
That's the car business. When I write a cover story that looks at the products and the processes of a particular car company, out come the comments and questions from skeptics and critics. This is as it should be and this is how it was in response to my recent story about Hyundai.
So when Jim, a loyal reader, threw some smart comments and questions my way, I felt compelled to answer them. The questions:
The 2012 Hyundais have 5-year financing at 0 per cent and 2011 models have seven years at 0 per cent This begs the question of why?
Hyundai is, indeed, flogging a lot of products with 0.0 per cent financing for up to 84 months. But not all 2012s have 0.0 per cent financing. The Accent hatchback, for instance, comes with 2.9 per cent for 60 months. On the leasing side, the best 2012 deal I could find is 3.49 per cent for five years. Sales incentives are a moving target, however – which is why we do a new Deals of the Week each week in Globe Drive.
The bigger question is why the deals at all? Jim's underlying premise is that if Hyundai is making such great vehicles now, why are they being pushed off dealer lots with rich sales sweeteners?
One part of the answer is simple: every car company in Canada is doing this. To remain competitive on a pricing basis, car companies and their dealers have been piling on the sales incentives for quite some time now.
And these deals are not going away as long as our loonie remains strong. A mighty loonie gives car companies in Canada plenty of room to lard on the discounts. Also, remember that the auto companies here downsized their operations mightily when our dollar was worth $0.62 and while there has been some hiring, I have not run into a fat operation in Canada despite the strength of the dollar.
Another part of the answer is that Hyundai benefits from Korean currency exchange rates, particularly versus the Japanese yen which is absurdly over-valued given the disaster that is the Japanese economy overall.
Finally, Hyundai and its sister company Kia are discounting in an effort to grab market share from the big Japanese car companies. Toyota and Honda have been particularly vulnerable this year following the earthquake and tsunami disasters in March which had a dramatic impact on production of new vehicles. Hyundai has been attacking two wounded companies with rich deals on new products. That's business.
In short, Hyundai is discounting for a long list of reasons, but most important of all, because the company can.
Canadians buy Hyundais at twice the per capita rate as Americans, but get a five-year warranty instead of a 10-year warranty.
Let's be clear on what's going on here. Hyundai does offer a 10-year power train warranty in the United States – but it applies only to the original owner. Hyundai officials tell me that if that vehicle is sold, the second and subsequent U.S. owners have power train coverage under the 5-year/ 60,000-mile limited warranty.
Hyundai Canada spokesman Chad Heard also notes, "Laws in Canada don't allow for this kind of warranty program, so Hyundai vehicles in Canada have a five-year/100,000-km warranty that is fully transferable."
Hyundai Canada has no Canadian assembly plants. Maybe you could ask them why.
I have asked Hyundai Canada president Steve Kelleher this very question many times and his short answer is he'd love to see a Hyundai plant in Canada, but nothing is planned. Kelleher, a Cornell grad, is no dummy. He knows that is looks bad for Hyundai to enjoy booming sales in Canada without any manufacturing presence at all.
Let's contrast this with Honda, which will ramp up production to 100 per cent capacity this week at the Alliston, Ont., factory that makes Civics. According to Honda Canada, the company's manufacturing investment here represents "a total investment of $2.6-billion into the Canadian economy" and the company sources "nearly $1.3-billion in goods yearly from Canadian suppliers – not the mention the 4,200 Canadian jobs!"
Toyota also has major manufacturing investments in Canada – the newest plant being in Woodstock, Ont., as well as the company's long-standing assembly operation in Cambridge, Ont. As with Honda, Toyota has invested billions in Canada and employs thousands in manufacturing.
Manufacturing jobs like these are not low-wage, no-benefits pizza-delivery jobs (with all due respect to pizza delivery work). These are jobs on which it's possible to raise a family, with good benefits.
Hyundai Canada is likely to sell between 130,000-140,000 vehicles in Canada this year. Hyundai Canada certainly will out-sell Honda Canada and the company is not far behind Toyota Canada, too. At these sales levels, Hyundai simply must consider a Canadian manufacturing operation – the sooner the better.
Public opinion will put pressure on the company, yet at the same time a manufacturing plant in Canada could be a smart business decision. Remember, Hyundai vehicles imported into Canada from South Korea are subject to a 6.1 per cent duty. If Hyundai built everything in a NAFTA zone – and that includes Canada – away would go all tariffs.
With booming sales in Canada, the next step for Hyundai is to step up and be a responsible corporate citizen. That means a substantial manufacturing investment. Now that Hyundai is the second-largest importer in Canada by sales, the time is now.