I’ve levied my share of criticism at Hyundai, the Korean automaker which first introduced their vehicles to the US market in the mid1980s. Back then, the compact Hyundai Excel was the cheapest priced car sold in America, with a starting price of around $3500 — hundreds of dollars below anything else being sold at the time. It wasn’t the price of the Excel that concerned me and other automotive enthusiasts, rather the quality of the car and subsequent models. Let’s just say that Hyundai quickly acquired a reputation for building subquality vehicles at dirt cheap prices.

Fast forward two decades and the Korean automaker has certainly turned the corner. Quality is up, on par with Toyota, while prices remain comparatively low to competing models in its class. It isn’t hard to find a nicely-equipped midsize Hyundai Sonata selling for several thousand dollars less than a Toyota Camry or Ford Fusion, appealing to shoppers considering a five-passenger sedan. In addition, U.S. sales are on par with Mazda and Volkswagen, allowing Hyundai to compete for the top position of the second-tier of automakers in the US marketplace.

Hyundai eventually wants to challenge the GM-Toyota-Ford-Chrysler-Honda-Nissan (Big 6) juggernaut, but they’ll have to triple their sales before that will happen. In the meantime, meeting sales expectations now will help Hyundai when they’re ready to jump to the next level later.

Sales Plummeted In January

Unfortunately for Hyundai, sales are on the decline and at a rate far worse than the auto industry average. For January 2008, US auto sales dropped an average of 4.3% over January 2007, but Hyundai’s loss was a whopping 22.6%. Selling just 21,452 vehicles for the month, annually adjusted that amounts to just over 257,000 units for the year. What’s particularly bad about these numbers is that Hyundai has been setting lofty sales goals as high as 550,000 vehicles annually. Even with an expected turn around later this year when the luxury Hyundai Genesis sedan is introduced, it is hard to see the company coming anywhere close to its goals.

In my opinion, there are several factors behind Hyundai’s problems that Hyundai management doesn’t seem to fully grasp:

Still A Budget Brand — For all of its quality improvements, Hyundai is still a budget brand. Consumers love the low prices, but there just aren’t enough of them who are willing to trade their Honda Accord in for a Hyundai Sonata or consider a Hyundai Veracruz when they really want a Lexus.

The Big 6 Aren’t About To Retreat — Hyundai’s growth will have to come at the expense of snagging sales from the Big 6 and that won’t be easy. Chrysler’s sales are down because the company is overly dependent on slow selling trucks while Ford’s most recent losses can be attributed to a cut in fleet sales. The remaining players — GM, Toyota, Honda and Nissan — are all healthy, bringing out new products that consumers want. Swiping sales from other small-time players is possible, but not likely to be enough to propel Hyundai.

No Luxury Brand — This summer the luxurious Genesis will be sold by Hyundai a car that promises to have the luxury and performance of a Mercedes S-Class but priced like a C-Class. Therein lies the rub — will consumers really be interested in a luxury Hyundai? It is my belief that Hyundai is seriously miscalculating how the American motoring public perceives its fleet. What makes Hyundai think that they can get away with selling a car as a Hyundai when Toyota, Honda, and Nissan understood that they needed a luxury brand to sell their top of the line cars stateside? Lexus, Acura, and Infiniti have served Toyota, Honda and Nissan well but comparing a Hyundai model to Cadillac, BMW, Lexus, Mercedes, et al, just doesn’t seem right. Hyundai should have developed a luxury brand and placed the Veracruz and Genesis underneath that umbrella.

Failing To Understand American Consumers Is Dangerous

I’m not saying that Hyundai is finished in the US, but their current sales expectations are unrealistic while their lack of brand difference will hurt them. Eventually, Hyundai will likely rebound but short term missteps will continue to hound the Korean automotive giant for years to come.

Someone in Seoul needs to better understand American consumers.