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UPDATE 3-True US autos recovery not here yet -Hyundai exec
February 3, 2012 / 11:45 PM / 6 years ago

UPDATE 3-True US autos recovery not here yet -Hyundai exec

* ‘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 (Reuters) - 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 recession.

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 industry.

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 comfortable level.”

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.


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, assembly plant.

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 plant facilities.

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 plant.

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 Georgia.

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.

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