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How Hyundai Plans to Sell Shoppers on its Genesis Brand

CARS.COM — Just 4½ months after Hyundai’s announcement of its new luxury brand, the automaker said it would debut a concept that hinted at a third model beyond the Genesis G80 and G90 sedans. And there it was: Amid booming fanfare at the 2016 New York International Auto Show, Genesis unveiled the New York Concept, a sport sedan that could challenge the BMW 3 Series and Mercedes-Benz C-Class.

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Still, some questions remain. How will Genesis shoppers buy a car, both in the near-term and down the road? Will Genesis follow the lead of other luxury brands and offer separate warranty terms or complimentary maintenance? Will Genesis vehicles be sold at Hyundai dealers?

Hyundai shared some of the strategy at the Detroit auto show in January, but we learned a bit more in New York.

Hyundai Dealerships for Now

Genesis doesn’t have separate dealerships just yet, and when the G80 and G90 go on sale this summer — specifically July or August, spokesman Derek Joyce told us — the brand will retain the current showroom-within-a-showroom strategy, where Hyundai dealers sell the cars in separate areas of the dealership. That’s how dealers sell the outgoing Genesis and Equus sedans, Hyundai’s two luxury models that will become the G80 and G90, respectively.

The G80 and G90 probably won’t be sold in Hyundai dealers forever, though. It’s “probably not” a good idea over the long run, AutoPacific analyst Dave Sullivan said, noting that when Toyota launched its Lexus division in 1989, it had stand-alone dealerships despite starting off with just two cars. But Sullivan said it’s a useful tactic for now until Hyundai can convince dealers to build separate Genesis facilities.

The automaker has to be careful, he added.

“Look at Fiat: They asked all these dealers to invest all this money to get this franchise, and there hasn’t exactly been the products behind it,” he said. “In order to make it feasible or financially attractive to become one of these [Genesis] dealers, there’s going to be steps along the way.”

Stand-Alone Dealerships Within Five Years

The eventual hope is for Genesis to have its own dealerships. Erwin Raphael, Genesis’ just-appointed U.S. general manager, told Cars.com that Genesis plans to have stand-alone dealers within five years.

“We haven’t decided exactly when” those stores will arrive, Raphael told us at the New York show. But “we think the experience — the dealer and customer experience — is as important as the product,” he said.

Hyundai has gone to great lengths to differentiate the Genesis and Equus purchase experience, from at-home test drives to maintenance valets, but Raphael said the Genesis brand plans to elevate that even more. He declined to provide any specifics.

Joyce said Hyundai dealers who sold the Equus and Genesis had to have at least one trained specialist, a policy that will persist with the transition to the Genesis brand. Asked if Hyundai would offer more luxury perks, like complimentary maintenance or unique warranty terms, Joyce told us Hyundai has a team reviewing such options and “all of those [ideas] are under consideration.”

Separate warranty and maintenance programs are unnecessary right now, IHS Automotive analyst Stephanie Brinley said. Hyundai also may find its 10-year powertrain warranty — a big value proposition for many qualified buyers — unnecessary for Genesis, given luxury shoppers largely lease their cars, Brinley said.

‘Hugely Expensive Undertaking’

There are 837 U.S. Hyundai dealers as of Jan. 1, 2016, according to Automotive News. Joyce said roughly half of them — about 400 dealers — sell the Genesis and Equus sedans. Hyundai will offer them a shot at selling the G80 and G90 this summer, Joyce said.

Getting them to build separate facilities is no small request.

“A dedicated network of dealerships is a hugely expensive undertaking,” Brinley said. And having 400-plus dealers is more than double the number that a new luxury brand really needs, she added. (Indeed, as of Jan. 1, Automotive News said BMW had 339 U.S. dealerships and Mercedes-Benz had 373. Lexus had just 236.)

Genesis plans to launch six models by 2020, a point at which it could have sufficient cars and sales volume to entice dealers to build stand-alone facilities. Shared service bays and behind-the-scenes operations could help Hyundai manage costs between the two, Brinley said.

Raphael admitted it’s a hard sell right now: “With just two models, it’s very difficult to make a business case,” he said.

But Brinley thinks the initial strategy makes sense.

“The Hyundai approach is not to standard convention, but it is the fastest and least expensive way to get the Genesis brand up and running,” she said. “There is a [sales] volume level at which an independent dealer network may be advisable, but it also may not be critical for some years to come.”

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