Hyundai tries to revive momentum with new China-only car

SEOUL/BEIJING July 31 Tue Jul 31, 2012 4:21am EDT

SEOUL/BEIJING July 31 (Reuters) - South Korean automaker Hyundai Motor is planning to launch a car made just for China in early 2014 as it tries to regain momentum in the world's biggest auto market, where it lost market share during the first half of 2012.

According to two individuals with direct knowledge of the car, Hyundai is shrinking the mid-size Sonata sedan to create what one of the sources described as a "Sonata-lite".

The intent is to create a more affordable smaller car that is still roomy and upscale enough for Chinese middle-class buyers trying to trade up, many of whom are now replacing their first cars, which tend to be small vehicles.

"With the car, we're trying to cope with a shift in China's marketplace," one of the individuals said.

As income grows in China, people are more interested in driving larger cars, he said.

But bigger cars come with bigger price tags and some car buyers cannot afford to jump from a low-priced compact, which costs from about 100,000 yuan for a global brand ($15,500), to a Sonata sedan, which starts around 167,000 yuan and goes up to 250,000 yuan for the top-end model ($26,200-$39,200).

With the new car, Hyundai is in essence trying to create a new segment that blends the roominess and upscale feel of a mid-size vehicle with the frugality of compact cars, according to one of the knowledgeable individuals.

Hyundai developed the car from the ground up, modifying existing technology, and currently has no plans to sell it elsewhere, he said.

Frank Ahrens, a Hyundai spokesman in Seoul, confirmed that the company plans "to produce a new model sized between the Sonata and the Elantra", but declined to provide details.

Hyundai's chief financial officer, Lee Won-hee, said during an earnings call last week that a new plant Hyundai is preparing to open in Beijing - its third in China - is slated to produce a car slotted between its Elantra compact and the Sonata.

"The segment is seeing demand grow rapidly," Lee said.

FOLLOWING NISSAN

The car's price tag has not been decided, but one clue can be found in the choice of engine.

According to one of the knowledgeable people, the car is likely to be powered by a 1.8-litre engine, as well as possibly a 1.6-litre turbo-charged engine - both the kind of engines typically used in smaller cars. In fact, the new car pulls many of its key components from the Elantra, he said. The Sonata, which is more expensive than the Elantra, is powered by 2.0-litre and 2.4-litre engines in China.

With the new car, Hyundai is emulating a strategy that rival Nissan Motor used to create a hit with its Sylphy car, which Nissan developed by morphing the Tiida, a compact car, into a bigger car. Nissan recently launched the redesigned Sylphy, which starts at 119,000 yuan ($18,700), and is aiming to sell around 200,000 of them a year.

One of the individuals said Hyundai's new China-only car has been designed to compete with the Sylphy.

"We're very wary of Nissan because it is performing spectacularly recently," he said. "Ours will be better than the Sylphy."

Hyundai is eager for a new hit in China.

The company is gaining market share rapidly in the United States and Europe, and until recently had been a stellar performer in China too.

Hyundai is the fourth-best selling passenger car brand in China so far this year, behind Volkswagen, Nissan and Toyota, according to research firm LMC Automotive.

But its market share dipped to 5.65 percent at the end of the first half of 2012, down from 5.89 percent at the end of last year, according to LMC. Volkswagen, GM, Toyota Motor and Nissan all gained ground, posting faster sales growth.