Genesis snub leaves some Hyundai dealers reeling

The sale of the Genesis G90 will be concentrated in 48 markets.

While elite-level Hyundai dealers in key markets are relieved to have the chance to bid for Genesis franchises, other pockets of the dealer body are bitter over the tumultuous rollout of the luxury brand’s retail network, and the fact that they’ll be left out of it.

The Genesis launch has been less than optimal, conceded Andrew DiFeo, chairman of the Hyundai National Dealer Council. It took some back and forth with the automaker to get something close to a fair deal to compensate the disenfranchised dealers, DiFeo said, but some dealers still aren’t happy with the outcome.

When the rollout is complete, the vast majority of Hyundai’s 850 dealers will lose their right to carry Genesis products, including all of the nearly 500 stores that sell only the Genesis G80, as Genesis trims its network to about 100 stores concentrated in 48 markets.

“We stressed the importance that there needs to be compensation, and the compensation can’t just be for buying back cars and parts,” DiFeo told Automotive News. “There is a loss of value in that dealer’s business personally and professionally, and the numbers they’re coming up with have to be commensurate with that. We never said, ‘It needs to be this dollar amount.’ But we said the calculation needs to factor in all of these things, and I think they got pretty close to that.”

DiFeo: “They got pretty close.”

“There will be cases where there will be disagreements with how it was separated,” DiFeo added, “but the only way to have changed this is if the Hyundai Genesis didn’t exist in 2009.”

He’s referring to the first luxury model Hyundai introduced in the U.S., which paved the way for an even higher-end model, the Equus, that only about 350 dealers were eligible to sell. Both models were subsequently shifted into the Genesis brand as the G80 and G90, respectively, forcing Hyundai executives to confront the conflict they created between the two tiers of dealerships, and between Hyundai’s value-priced brand and the more exclusive image it sought to cultivate with Genesis.

The Genesis compensation plan announced last month is intended to reimburse Hyundai dealers who invested in inventory, training and equipment to service Genesis products and help launch the brand. Settlement offers will also take sales volume into account.

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The goal, says Genesis General Manager Erwin Raphael, is to leave dealers without any “baggage” once they separate from the brand.

One dealer who asked not to be named told Automotive News he felt blindsided by Genesis’ decision last year to accelerate the separation of its retail network and significantly reduce its dealer count.

He had been looking forward to selling the G80 and G90, but now his market isn’t getting any Genesis stores. He said he feels the compensation he was offered isn’t enough.

“We believed in Hyundai and wanted to be a part of the new franchise,” said the dealer, who invested around $100,000 in showroom enhancements and training to qualify to carry the higher-end Genesis products. “It’s like you go to the casino and you won the jackpot, [but] instead of paying off, they want to give you the $10 you walked in with.”

Around three years ago, the dealer said, Hyundai believed it could launch luxury vehicles without stand-alone stores. He recalled the brand saying that luxury buyers didn’t care about fancy countertops and buildings.

Now, the strategy has flipped, and he thinks the brand is preoccupied with trying to be Lexus.

Appleton: Met with dealers

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, said he met with six Hyundai dealers last week who were concerned about where they stood in the future of Genesis.

“They all got documents by Hyundai asking them to release their Genesis franchises. That’s the thing that’s rocked their world,” Appleton said.

A Genesis spokesman said those documents were part of a package that included a separation letter explaining the reasoning of a stand-alone retail network, a settlement agreement and a breakdown of the compensation details.

“Hyundai is offering — not a lot of money — but enough. It’s nothing you’d laugh at, but the dealers are struggling with it.”

Brian Smith, the former Lexus executive who became COO of Hyundai Motor America in October, said the automaker worked closely with dealers on the Genesis launch strategy to make sure it was getting their feedback.

DiFeo said he’s thankful that at least some dealers in the Hyundai network will get the first shot at Genesis franchises in key markets.

“Was it the most optimal way to do this, and the most optimal way of communication between us and the manufacturer? No,” he said. “Given the situation, it’s the best we could’ve asked for.”

Jamie LaReau contributed to this report.