With the approaching debut of its Equus model, Hyundai is headed farther down a path taken by many foreign automakers with varying levels of success: creating a luxury line of cars to compete in the U.S. premium market. The Korean automaker is betting big -- it spent $260 million just developing the all-aluminum V-8 that will go into their luxury vehicles -- that Americans will pay upward of $48,000 and beyond for a Hyundai Equus.
Why risk all that money to muscle into the market for luxury sedans, one of the most competitive sectors of the U.S. automotive landscape? It's simple: Luxury is a cash cow for whoever can successfully produce it. For every top-of-the-line Lexus that Toyota sells, they make 10 times the cash they get from selling a Toyota Corolla, according to a recent Bloomberg article.
That's because when a consumer buys a luxury sedan, they're not just paying a premium for extras like leather and wood. Sure, those extras figure into the cost of the car. But that doesn't account for the entire markup. When customers pay $40,000 or more for a car, they're buying the prestige of a premium brand. And since that prestige doesn't add extra manufacturing costs for Toyota, it means bigger profits.
For example, take the Toyota Camry. It's considered universally to be an above-average family sedan -- quiet, strong engine, large and comfortable interior. With all the bells and whistles -- leather, wood, navigation, 250-hp V-6 engine -- it comes in at $31,334.
The Lexus ES, built on the same platform, virtually the same engine (sans 22 hp) and similar creature comforts, starts at $35,175. What does the extra $3,841 buy you? Lexus people would probably say service, etc., but what it really buys is that little slanted "L" on the grill of your car, which signals to the world that you can afford a premium vehicle.
That big markup is the brass ring Hyundai is chasing, and who can blame them? Right now, they probably aren't charging the type of brand premium Lexus can command; their Genesis sedan retails at $39,500 for the V-8 model, considerably less than comparable models from established luxury brands. Just as Toyota did with its once-upstart luxury brand, Hyundai is offering big value to get its foot in the door in the U.S. market. But at some point, will it get to start charging extra for the cache, as Lexus now does? Will people be willing to pay thousands for a circle H on the grill rather than, say, a blue-and-white propeller or a three-point star?
Only time will tell, but so far the Genesis is selling reasonably well; it's seen a modest increase in sales over 2009 so far this year, and the company plans to push ahead with its Equus, which will start at $48,000, fancy hood ornament and all, later this year.
Would you consider buying a luxury car from Hyundai? Is cache important to you when buying a car, or do you think it's silly to pay extra for branding?