Mercedes

Hyundai's next-gen Genesis reflects automaker's momentum

April 7, 2014: 11:11 AM ET

Skipping separate luxury franchise saves Hyundai capital, costs brand cred.

By Doron Levin

Hyundai Genesis

Hyundai Genesis

FORTUNE -- Much grousing and cheering has already broken out on social media over the hexagonal grille on the 2015 Genesis, the new second-generation luxury sedan from Hyundai Motor.

Some love the car's new exterior design, some are derisive -- everyone who takes more than a casual interest in cars will notice it.

Hyundai's luxury models are slowly but surely elbowing their way into the consciousness of buyers and enthusiasts. The South Korean car company brought the first-generation Genesis to the U.S. in 2008, selling a small, respectable number of the rear-wheel-drive, midsize luxury sedans.

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The latest model, built on an all-new architecture, comes with improved versions of the 3.8-liter V-6 and 5.0-liter V-8 engines. Optional equipment includes a slew of high-tech safety and convenience features, such as adaptive cruise control, which maintains speed while safeguarding that the Genesis doesn't collide with a slower-moving car.

In its first year on the market, Genesis sold fewer than 14,000 units, a number that increased to nearly 20,000 in 2013. That's a drop in the bucket in relation to the 250,000 midsize luxury sedans such as the Mercedes E Class, Audi A6, and Lexus ES 350 (TM) sold in the U.S. annually.

Hyundai decided against setting up an entire luxury franchise with its own dealer network. That saved the company time and investment capital, but put it at somewhat of a disadvantage to networks like Lexus, which attract customers who appreciate the extra pampering they get.

"With the latest Genesis matching the [BMW] 5 Series and E-Class on feature content, technology and performance, while substantially undercutting them on price, Hyundai's long-term plan has merit," said Karl Brauer, a senior analyst with Kbb.com and Kelley Blue Book.

As a competitive luxury sedan, Brauer said, Genesis "ticks every box," except brand recognition. As a result, the model is sold at a great value compared to its German and Japanese competitors. Hyundai says the $42,950 Genesis with a 3.8-liter engine sells for $11,740 less than the comparable Lexus GS350 and $17,605 less than the comparable Mercedes E350.

That pricing disparity will attract buyers who figure out they can enjoy luxury features and powerful performance at a 20 t0 30% discount to comparable German and Japanese luxury models.

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Longer term, Hyundai's goal is to sell its luxury cars at pricing parity to the world's best, an outcome that looks much less far-fetched than it did a few years ago. (Another Korean brand, Samsung, went from being a cut-rate brand of color televisions to a highly regarded one that has helped to push Japan's Sony to the margins.) Meantime, the new luxury car should raise the brand awareness of Hyundai, and its reputation for engineering.

Of his South Korean colleagues, Dave Zuchowski, Hyundai's U.S. president, said "it's hard to describe how hard everyone works and how determined they are to achieve success." In January, Zuchowski replaced John Krafcik in the top U.S. executive post.

Hyundai and its sister company, Kia, now command close to 8% of the U.S. market, just behind Nissan and way ahead of Volkswagen. Later this year, Hyundai will unveil its next-generation Sonata, the family sedan that's arguably its most-important model.

Barring the unforeseen, the Hyundai juggernaut looks poised to keep on rolling, taking business from any other automaker that can't keep up with its energy and ambition.

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