Genesis: The hits just keep on coming

Genesis has finally solidified itself as a bona fide luxury brand in the U.S. In 2022, surging demand for hot new products — including two electric vehicles and a new flagship sedan — as well as the opening of two standalone stores and 14 percent growth in a market forecast to be down 8 percent helped secure Genesis' entry into the upscale faction the brand has been fighting to join since its arrival in the U.S. in 2016.

"The hits just keep on coming," said Peter Lanzavecchia, longtime chairman and inaugural member of the Genesis National Dealer Advisory Council, who assumed his post in 2017. Lanzavecchia's confidence is due in part to the new leadership assembled by Hyundai and Genesis Motor North America CEO Jose Muñoz.

In 2021, Muñoz brought in Claudia Marquez as COO, and in 2022 Wendy Orthman became executive director of marketing, Peter Donnellan joined as executive director of aftersales, and Tedros Mengiste was promoted to vice president of sales.

"It's a dream team and it's made a huge difference at the headquarters level," Lanzavecchia said.

Lanzavecchia, 67, an officer in Burns-Kull Auto Group and owner of Genesis of Cherry Hill, Burns Hyundai and Burns Buick-GMC, all in Marlton, N.J., said that Genesis' parent, Hyundai Motor Group, also has prioritized production and chip allocation to the budding brand, possibly over some Hyundai models, and redirected some of the products to the U.S. to satisfy demand.

And that may continue. Though nothing has been announced, Lanzavecchia says with Genesis global production capacity poised to rise, U.S. dealers are hoping to earn a 20 percent increase in wholesale shipments.

Of course, growth is not without challenge, especially as dealers struggle to get new, pricey facilities constructed that will better serve the upscale Genesis clientele and separate the sales and service of the premium products from mainstream Hyundai.

"The biggest pain point for dealers under construction is the approval and the construction delays," Lanzavecchia said.

Lanzavecchia spoke with Staff Reporter Carly Schaffner. Here are edited excerpts.

Q: What has the inventory situation been for Genesis in 2022? How does it look for 2023?

A: Ground stock again was very tight through Q3, and it started to improve as we entered Q4 for two reasons. Production and wholesale shipments increased quite significantly in Q4 from Q3, and a softening of overall industry demand. Ground stock is still tight, and it takes a while through the turn-and-earn system for all the dealers to catch up on meeting their demand — we still have dealers selling to zero in certain parts of the country — but it is improving nominally.

What has Genesis told dealers about production levels?

I think they're making some improvements in the production capacity. The Electrified GV70 will be produced in Alabama starting this month, and a 20 percent increase over 2022 is probably a good planning number. That will vary by dealer depending on how they're doing in their turn-and-earn system.

How are Genesis dealers coping with inventory constraints?

It's case by case. We still have a fairly aggressive sales objective that we need to push, and many of the pricing opportunities that some dealers found in the first half of 2022 are starting to change. Some discounting is now settling in on certain models to keep the velocity going and avoid a buildup of the ground stock. The last thing a dealer wants to do is have ground stock build up and lose future allocation.

It's really about preselling the pipeline. We have an objective to sell 35 percent of our total pipeline before it arrives at the dealerships. I'd say we're close as a national network to achieving that objective. It takes a special skill and relationship to sell a vehicle that is just leaving Korea on a boat.

Is selling 35 percent of the pipeline a newer requirement or has that always been the Genesis way?

It became a requirement once the ground stock disappeared, which was [caused by] the chip shortage. Genesis and Hyundai's management of the chip shortage has been better than most other OEMs'; while many OEMs cancelled chip orders, Genesis made the decision in the early days of COVID to continue to have their orders fulfilled. I think we had the least negative impact to our production and that's why you're seeing so many share gains for both Hyundai and Genesis. As demand increased and production — despite their best efforts — was impaired, preselling the pipeline became a vital part of the Genesis sales operation.

What support did Genesis provide to get dealers through the low-inventory period?

Flexibility. Genesis is a valet service brand, which means its retailers need large loaner fleets. [Initially] the dealership would place vehicles into the loaner fleet and [between the time] the service team left on Friday and returned on Monday, half of them would be sold because there was nothing else around. Genesis understood that.

We have some very highly defined objectives on the number of vehicles in the service fleet and the percentage of complimentary maintenance that needs to be provided through valet service, and it was very tough to achieve some of those benchmarks because of the shortage of loaner cars, so Genesis did relax some of those strict standards.

How is Genesis navigating vehicle affordability concerns?

In the escalating interest rate environment we saw in the second half [of 2022], a lot more of our Genesis clients were paying cash. We have an affluent client with Genesis, but for several of our models — the G70 and G80 sedans as well as the GV70 crossover — many clients still want to finance or lease, so affordable payments are important. We saw a little bit of support coming into Q4 with some subvented rates and lease support on the models that really have more of a payment buyer.

How are Genesis dealerships performing from a profitability standpoint?

From time to time, I review the Genesis composite financial statement, and it shows very strong return on sales performance. But there needs to be an asterisk in the record books for 2022 because — other than a couple of locations — Genesis is still operating as a temporary add-on to the Hyundai operation with minimal incremental expense structures and a lot of gross profit. For many dealers, and for our group, it's the highest-performing profit brand from a return-on-sales metric. However, the retail advisory board has identified our No. 1 priority topic as retailer profitability in an exclusive facility, because as soon as the retailers transition into these $10 or $15 million facilities with those rent factors, dedicated staff, no ability to really share except maybe back-office operations, the expense structure changes dramatically. So, yes, the profits are off the charts and 2022 will certainly beat the record year of 2021, but we really need to put an asterisk on that.

After an industrywide decline in leasing volume, what is Genesis' plan to promote leasing in 2023?

Leasing is a key component of customer retention, which is a key component of retailer profitability. Obviously, we're very concerned with the big decline across the industry and with Genesis on leasing penetration.

We have a subcommittee that meets with Genesis finance leadership regularly, and the No. 1 topic is lease penetration. We know leasing support is expensive, but we also need high levels of lease penetration for the health of our retailers long term.

Genesis will lead Hyundai Motor Group's transition to all electric, and dealers will need to help educate consumers as the EV landscape develops. Is there pressure for dealers to get it right?

The misconception among most consumers that have never owned an EV is that they don't require any maintenance, and that's just not accurate. I think a lot of the team members in the service departments also believe that EVs don't require maintenance. Genesis has provided additional training on the sales side, but we need it on service as well.

Genesis has very astutely set up the measurement of client satisfaction for EVs separately from non-EVs. It's on our dashboards and we see it every day, and we can get an early read on how our teams are doing in both sales and service. I think Genesis might be a little ahead of the curve on this and it's going to be valuable for us.

Has the GV60 met or exceeded expectations, and will it help position Genesis as a premium EV brand?

The short answer is yes. Genesis has a phased launch of their EVs — it started with California, New Jersey, New York and Connecticut, and has since expanded to Arizona, Nevada, Utah and Washington.

The GV60 is all-new platform that has been very well received by the EV shopper. Genesis retailers believe that the key to our brand establishing itself as a luxury EV brand will be the continued launch of these state-of-the-art EVs. We do think that the Genesis design team is a leader in EV design, not only of the sheet metal and the powertrains and the batteries, but the interiors and the customer interface experience.

Are dealers eager for Genesis to expand allocation beyond eight states?

Yes and no. Expanding the distribution footprint for our EVs is super important for our transition to an all-EV brand. However, dealers also recognize there are hot, warm and cold spots for EV customer acceptance around the country. Some dealers are a little concerned about Genesis' rapid transition because they know that EV registrations are not that plentiful in their markets.

We firmly believe that customer demand should drive just about everything, and government mandates are sometimes off target.

How will the electric version of the GV70 round out the Genesis lineup?

As we look at the sales rate of the GV60 and its popularity, we believe the [Electrified] GV70 sales potential will exceed that of GV60. It's in a bigger segment, it's a bigger vehicle, and while the GV60 has all the tech and amazing safety and performance characteristics, to some clients it's a little on the small side. So, we think that the electric GV70 is going to be a big step on our product journey.

The Inflation Reduction Act disqualifies imported EVs from receiving the $7,500 federal tax credit and will have even more complex barriers in 2023. Are dealers worried about how this change will affect EV sales as Genesis approaches 2025?

We had hoped for a transitional plan. I can't argue with any of the components of the Inflation Reduction Act — the rare-mineral sourcing, the North American assembly or even the MSRP or the household income limits — but it should have had a transitional plan for an OEM like [Hyundai] that made a multibillion-dollar commitment [to build EVs in the U.S.]. That's certainly a good-faith indicator that we intend to produce here. In the meantime, we've got great product and it's well accepted by EV shoppers and will continue to generate sales until we can figure out where we stand on the very complicated qualifications that exist for the federal tax credit.

Has Genesis imposed any new requirements or sales standards related to selling EVs now or in the future?

Many OEMs have used the higher cost of EVs to update the dealer margin structure on those vehicles, including Genesis.

We pay MSRP for the EVs. However, Genesis has protected the core "visible margins" on the non-EVs, and all the EVs are eligible for all the Keystone payouts.

While some qualifications exist to earn that base margin, Genesis has gone out of their way to make sure that every dealer qualifies. And then of course, at that point, the EV just falls into the listing like every other Genesis — you either earn your sales objective money or your [Customer Satisfaction Index] money or your Signature Retailer money or not.

How is the Keystone program progressing?

The Keystone program continues to evolve — it's a living organism. Genesis has designed the Keystone program to pay significant rewards for outstanding performance, and the advisory board talks to Genesis leadership about the specific, sometimes temporary, challenges to achieving outstanding performance. [For example], most Genesis operations are currently housed inside Hyundai operations, so that does add a level of challenges, especially when your Hyundai facility is undergoing a renovation mandated by Hyundai with very strict timing. Dealers are relocating their Genesis sales and service teams into trailers or temporary quarters while the Hyundai facility is being worked on. The Genesis client doesn't want to be in a Hyundai dealership to begin with, and they certainly don't want to be in a Hyundai trailer.

We're working with Genesis to make sure the program remains fair.

What's missing in the product lineup?

Dealers hope for a performance GT coupe — one's been rumored. I assume it could be an EV since there's lots of performance that comes along with the EV powertrain. A convertible concept — the X Convertible — was revealed at the Los Angeles Auto Show, which is an evolution of the X Speedium Coupe concept, which has been around for a long time. I think production of that convertible would help put an exclamation point at the end of the sentence saying Genesis is a full real luxury brand.

We also would like to see a true three-row GV90 sport-utility. We have a third-row option in the GV80, but it's really small.