Hyundai Motor (South Korean Stock Exchange: 005380.KS) said yesterday it plans to hold the line on adding U.S. dealerships. Hyundai already has an approximate 10% sales jump in 2011 and its Superbowl ads could bring that number up. The news came as welcome relief for CarMax (NYSE:KMX), Penske NYSE:PAG), and America’s Car-Mart (NASDAQ:CRMT) all of whom specialize in selling used cars as a primary revenue source.
With new car manufacturers like Hyundai pulling out all the stops in the last six months to get buyers into showrooms, used car sellers but discount prices and extend warranties.
Hyundai for example can not discount the price and extend a warranty, but can add after-market wheels and rims, throw in a factory rebate into the financing equation, offer road-side assistance, and deals on routine maintenance.
That makes it tough for used car dealerships to compete. Less new manufacturer dealerships from all the major auto makers would be a boon. The Hyundai announcement is a start.
By capping growth in its dealerships, Hyundai rewards present dealerships with larger territories to draw customers from. There’s also the old European supply model that “less is better” and fosters an “exclusive” sentiment.
Hyundai expects to sell about 590,000 vehicles in the United States this year, up 9.7% from approximately 538,000 sold in 2010, said David Zuchowski, Hyundai's EVP for U.S. sales.
"You don't need more dealers to sell more cars," Zuchowski said after a meeting with Hyundai dealers in San Francisco attending the National Automobile Dealers Association convention.
85% of Hyundai's 804 U.S. dealerships are profitable, and dealers saw an average profit increase of 57% in 2010 compared with 2009.
"We're able to attract outside investors, big dealers who weren't interested in Hyundai," Zuchowski said.
AutoNation (NYSE:AN) is interested in adding to its Hyundai dealerships in the "right markets." "The Hyundai business model is a much better business model," an executive told Reuters. "The product cadence, the product quality (and) the resale value has improved immensely."
Hyundai was ranked No. 7 in 2010 in J.D. Power and Associates' initial quality study, beating out luxury brands like Lincoln, Cadillac and Infiniti.
Hyundai has said it will increase its U.S. production to 330,000 in 2011, up from 300,000 last year.
Hyundai's U.S. sales rose 24% in 2010, the fastest growth of any of the large automakers in the U.S. market.