Hyundai Motor, whose sedan-heavy
lineup has held it back in a U.S. market powered by sport utility vehicles, is
considering developing larger SUVs based on its Genesis luxury sedan, four
people familiar with the matter told Reuters.
It
could take two or three years for the vehicle to go on sale, however, and the
South Korean firm's poor track record with bigger SUVs, and its lack of pickup
trucks, underscore the challenges in cracking the high-margin market for
utility vehicles dominated by U.S. and Japanese rivals.
There
is no certainty Hyundai
will bring the new vehicle to market, one of the people said, given concerns
about its lack of brand power in the higher-priced SUV segment, and whether oil
prices could surge again and erode the market for gas-guzzlers.
"We
are timid when it comes to bigger SUVs," said the person familiar with Hyundai's vehicle
development, who did not want to be named as he is not authorized to speak to
the media.
The
automaker is considering an internal proposal made last year to develop
Genesis-based SUVs to fill a gap at the high end of its SUV range, said a
second person with knowledge of the matter. The aim would be to plug into the
appeal of the Genesis to elevate Hyundai's overall brand
image.
U.S.
sales of the Genesis jumped by more than a third in January-May to nearly
15,000, far outpacing Hyundai's
overall sales gains of just 2 percent.
At the
end of next month, Hyundai
will halt production of its biggest SUV, the Veracruz, according to the
newspaper published by its South Korean labor union. Last year, Hyundai sold fewer than 5,000
of its Veracruz, all in South Korea, compared with 54,325 globally in 2007.
Hyundai confirmed
the discontinuation of the Veracruz, but said "this does not mean we are
giving up on a large SUV line-up."
"We
are considering developing premium, large SUVs based on customers' needs. We
plan to respond to the fast-changing market centered around SUVs by beefing up
our SUV line-up," it said in an emailed response to Reuters' inquiries.
SLOW LANE
Once an
outperformer in the United States, Hyundai's May
sales there fell 10 percent from a year earlier, the sharpest drop in nearly
five years and lagging the market's 2 percent gain.
Hyundai
shares are down 18 percent in 2015, the worst performing among major global
automakers, also hit by a weak yen that benefits Japanese rivals.
Sales
of SUVs and trucks are booming in the United States and South Korea, Hyundai's
second and third-biggest markets after China, but Hyundai offers only two
SUVs in the U.S. - the compact Tucson and the mid-sized Santa Fe, and no
pickups. In contrast, Toyota Motor's American lineup features eight SUVs and
two pickups.
"Overall,
Hyundai needs to have
competitive entries in the midsize, compact and sub-compact CUV/SUV
segments," said Tom Libby, manager, loyalty and industry analysis at
research firm IHS Automotive.
Of all
new Hyundai vehicles registered in the United States last year, 21.4 percent
were CUVs (crossover utility vehicles) or SUVs, compared with 33.9 percent for
the industry, according to IHS Automotive.
BUMPY ROAD
Hyundai's
caution over making big SUVs with three rows of seats is born of experience.
In
2007, it brought the Veracruz to the United States, positioning it as a luxury
model, but stopped selling it there in 2013 as sales dwindled. In 2011, sister
company Kia Motors pulled its largest SUV, the Borrego or Mohave, from the U.S.
market just three years after launch.
"Oil
prices are cheap now, but nobody knows how that's going to change. Mohave was a
good vehicle, but its sales fell as fuel prices rose," the first
individual said.
Even
where it has had SUV success with its Tucson compact, Hyundai is constrained by
tight capacity, and a second South Korean production line to supply markets
including the United States won't be online until September.
A
planned U.S. factory to make SUVs will enter production only in 2017, a source
told Reuters previously.
Hyundai
has said it is considering developing its first pickup, based on its Santa Cruz
mid-sized concept, to give it some play in the United States where pickups
account for 14 percent of vehicle sales, according to IHS data.
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