The mighty Hyundai juggernaut rolls on

July 6, 2011, 4:15 PM UTC

Two main themes of 2011’s post-recession competition in the U.S. car market so far are: 1) the rebound of Detroit and 2) the stumbles of Toyota.

A third and equally significant development has drawn less attention, namely the surging fortunes of South Korean automaker Hyundai. This summer, Hyundai begins selling its Accent small car in the U.S., which is likely to contend strongly against Ford’s Fiesta, Honda’s Fit and Chevrolet’s soon-to-be built Sonic.

Hyundai is also capitalizing on a strategy to grab sales, mainly from Lexus and Infiniti, by pursuing a luxury-car strategy that is innovative and less costly than setting up a separate brand and dealer network. Two years after introducing its Genesis sedan and coupe, the automaker is bringing out a face-lifted version with styling nips and tucks, as well as a more powerful engine and new eight-speed automatic transmission.

On the small-car front, Accent’s bona fides are impressive. Available in four-door and, soon, in five-door hatchback versions, Accent comes on the heels of Hyundai’s Sonata game-changing midsize sedan and its compact Elantra, both of which are highly acclaimed by reviewers and are selling well. The 40 mile-per-gallon highway rating will undoubtedly catch the attention of budget-conscious consumers.

In the first five months of the year, Hyundai and its affiliate Kia together added 1.4 points of U.S. market share, compared with a collective gain of 0.9 points for General Motors (GM), Ford (F), and Chrysler. On the basis of retail sales in May, not including sales to rental fleets, Sonata led all midsize family sedans, outselling the Chevrolet Cruze, Honda Accord and Nissan Altima.

What’s all the more remarkable is that Hyundai’s share gain through May comes off a much smaller base. Detroit-based automakers account for 46.2% of the market, compared with Hyundai and Kia’s 8.8%. But no one is taking Hyundai lightly anymore, especially those who recall how Toyota (TM), Honda (HMC) and Nissan were underestimated.

Hyundai’s U.S. executives can take pride in more than just the improvements in vehicle quality and design. The company’s marketers introduced an “Assurance” program in 2009 when unemployment was at its worst to guarantee car payments for buyers in the event that they lose their jobs. That program didn’t cost Hyundai much, its executives said, and kept sales strong.

With job loss now less of a worry, Assurance has been rebooted as a guarantee that when Hyundai owners decide to trade in their vehicles they will receive a minimum resale value. The buyer of a new Hyundai Elantra, for example, knows month-by-month what the resale value of the car will be for four years from the day it’s bought. That amount can be applied toward purchase of a new Hyundai. At the other end of their vehicle lineup, Hyundai executives are “thrilled” with the sales performance of the Equus luxury sedan, says Mike O’Brien, vice president of product planning. The sedan has filched sales mainly from Lexus’s LS460 sedan as well as Cadillac and Infiniti.

Because Equus is sold through Hyundai dealerships, a middle-of-the-road brand, dealers routinely pick up cars and deliver loaners to customers’ homes and businesses. The company years ago decided that building a separate dealership was too expensive, at least for now. “What’s really valuable to our customers is their time,” O’Brien says.

By turning necessity into a virtue, Hyundai has forced its way into the high end of the market. It’s a player in luxury sales, albeit a small one. Remembering how the industry once scoffed at the effrontery of Lexus and Infiniti, few are underestimating Hyundai’s future.

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