* 'Wealth effect' still lacking in US consumers -exec
* Home prices must recover to spur real auto market growth
* 'Unlikely' that Hyundai will lose US market share in 2012
* Hyundai seeks to reduce reliance on fleet sales
By Bernie Woodall
LAS VEGAS, Feb 3 The U.S. auto sector will
not recover significantly until U.S. home prices pick up and
consumers feel more prosperous, a top Hyundai Motor Co
executive said on Friday.
John Krafcik, head of Hyundai's North American operations,
said the recent U.S. auto industry sales figures showing
double-digit growth are misleading because much of the boost
came from less-profitable fleet customers.
Automakers posted better-than-expected U.S. January sales
growth of 11.4 percent on Wednesday. On an annualized basis, the
sales rate was the highest for the U.S. auto industry since
August 2009, when the United States was still mired in a deep
However, Krafcik said it is a concern that much of that
growth is coming from the need of American drivers to replace
their aging vehicles, as opposed to consumers who feel more
prosperous because of greater home equity and other factors.
Krafcik said he was surprised by encouraging jobs data
showing that the U.S. unemployment rate fell to 8.3 percent
, but that consumers will not return to the
new-car market until they feel more comfortable with the value
of their houses.
"Without housing and that wealth effect that people feel
from equity, it's hard for many people to go ahead and go off
and buy a car," Krafcik said at a J.D. Power & Associates auto
industry conference in Las Vegas.
"We haven't gotten to that point where we are seeing
incremental purchases because of the wealth factor," he added.
Krafcik said the January U.S. auto sales growth of 11.4
percent - nearly double the rate analysts had expected - may
have caused "celebrating a little bit prematurely" in the
He said that about half the gain in vehicle sales in January
2012 from January 2011 came from sales to fleet customers like
rental car agencies.
An overreliance on fleet sales can lower per-vehicle profits
and the resale value of vehicles purchased by American
consumers, factors that can tarnish a car brand.
In 2012, Hyundai hopes to draw between 6 and 7 percent of
its total U.S. sales from fleet customers, Krafcik said. That is
down from just under 10 percent of total U.S. sales in 2011 and
16 percent in 2010.
"I think long-term, we would stay at or below 10 percent,"
Krafcik said, referring to Hyundai's fleet mix. "It seems a very
Hyundai is now trying to reduce its reliance on fleet sales,
which accounted for as much as 26 percent of the Korean
automaker's U.S. sales in 2009.
INCREMENTAL OUTPUT RISE
One reason that Hyundai has been able to lower its share of
fleet sales is that it has been hemmed in by production
constraints the past two years at its Montgomery, Alabama,
Its Alabama factory produced 338,127 vehicles in 2011, up
from 300,500 in 2010. That 10 percent rise was accomplished by
tightening processes and without expanding production shifts or
That incremental 10 percent rise is not nearly enough to
meet the demand for Hyundai cars in North America.
He said that while Hyundai will continue to seek incremental
production gains in 2012, he does not believe that another 10
percent gain can be achieved.
"I think it's fair to say we are looking for incremental
production wherever we can find it," he said, adding that
Hyundai is not considering agreements with other automakers with
spare capacity to produce more Hyundai cars.
Still, there are "no plans to build a new plant at this
time," Krafcik said.
He also said there are no plans to expand the Montgomery
He was "not sure" if there will be any added shifts at the
Hyundai plant in Montgomery or at the West Point, Georgia, Kia
Motors Corp plant where last year about 90,000
Hyundai vehicles were produced. Kia and Hyundai have the same
Korean parent company.
The Montgomery plant makes the Hyundai Elantra and Sonata
sedans. Those vehicles are also produced at the Kia plant in
Krafcik said it was "unlikely" that Hyundai would lose
market share in 2012. Last year, Hyundai's U.S. market share was
5.1 percent, up from 4.6 percent in 2010. Its sales increased 20
percent in 2011 to 645,691 vehicles. He said Hyundai would gain
retail U.S. market share.