Hyundai CEO Jose Muñoz says customers would pay for a richer mix

Jose Muñoz wears a number of hats at Hyundai.

He is global COO of Hyundai Motor Co. in South Korea and CEO of Hyundai and Genesis Motors North America. In March, Muñoz, 57, was elected to the automaker's board of directors in Seoul. Hyundai has been on an expansion roll in North America under Muñoz, announcing plans last year to invest $5.5 billion in electric vehicle manufacturing capacity near Savannah, Ga., and introducing its first U.S.-made EV at its Montgomery, Ala., plant, the Genesis Electrified GV70.

He spoke this month with Senior Editor Lindsay Chappell. Here are edited excerpts.

Q: What do you anticipate the U.S. market will do this year? Are we in for sluggish sales?

A: Everybody thought so. But to be honest, we are cautiously optimistic. The market continues to grow. There is pent-up demand from the past couple of years, and now there is more supply. So it's been good for us. So far we've seen that retail is growing at a good pace, and it looks like many companies are taking advantage of fleet.

We ended the first quarter up by more than 15 percent. So I think that despite the interest rates, etc., consumers who need mobility will end up taking action and continue to buy cars as they did during the pandemic.

Do you see signs of a coming recession?

There may be signs of a recession here or there, but we are not negative. As I said, we're cautiously optimistic. Even during the pandemic, we decided to go on the offensive, and that ended up being good for us. So I don't see a big crisis coming.

How likely is it that higher interest rates will make consumers start delaying vehicle purchases?

Every time there is an uncertainty, or a hike in the interest rates in this case, consumers become very savvy. They look for good quality, good design and good technology at reasonable prices. And that's why our brand continues to be in high demand. Consumers have learned a lot during the pandemic. They're more demanding, they're more patient, and they are more savvy.

The market has been inching toward ever-higher transaction prices. If we enter into a recession, might the industry see that trend reverse, where people opt for lower-priced cars?

So far we haven't seen that. What we have seen is the consumer accepting the price trends. They continue to finance at higher fees or lease vehicles. I don't believe it's an alarming trend that prices have continued to go up a little bit. In our case, the mix has been going up because people like the higher trim mixes. They want the content and they're willing to pay for it.

In fact, it's an opportunity for us that if we could produce a much richer mix, meaning higher trims, we would sell even more of those and at even higher prices.

You were very open last year in your criticism of the Inflation Reduction Act and how it determined who would get federal EV tax credits, because it disrupted Hyundai's EV business plans. And then more recently, the rules changed again. How do you see this issue playing out, and how will it affect your investment plans in the U.S.?

We will maintain our position. First and foremost, we really embrace the U.S. policy of moving to electrification. We have one of the greenest portfolios of products, and carbon neutrality is part of what we're doing. You don't have many OEMs who have a full portfolio of battery EV, plug-in hybrid and even hydrogen.

But obviously, we were counting on certain programs when we did our calculations to invest in our battery EV plant in Savannah and in a U.S. battery plant. And we didn't like it when we saw that basically some competitors would get access to those [tax] benefits and we wouldn't.

But you know, we're still committed to electrification. We want to achieve a 7 percent [global] share of battery-electric vehicles by 2030. And to do that, we have a strong commitment to launch 17 battery models by 2030, which is 11 Hyundais and six Genesis. And we've actually doubled down on our plants in the country.

How much of your EV business is in leasing?

We're happy to see that the IRA is still allowing consumers to benefit from the lease side of the business, concerning the $7,500 tax credit. So we have focused a little bit more on lease on our battery-electric vehicles. And since the year started, we've increased from 5 percent to about 30 percent lease.

The customers benefit. If our country wants to deliver on the goal of 67 percent battery-electric vehicles by 2032, the more accessible we can be to everybody, the better. Look at the simple math. In a standard market of about 17 million sales, to reach 67 percent means more than 11 million EVs. Even if all of the domestics were producing only battery electrics, they wouldn't achieve that goal. So we need other OEMs like our group to contribute and to offer good product to sell battery electric EVs.

We didn't like what happened, but we doubled down. We're happy about the lease, and we will just carry on.

How big do you envision Genesis becoming? You said recently you want it to get to 100,000 sales. But does Genesis have the ability to grow beyond that, perhaps to get to the size of BMW or Lexus?

That's a great question. And, you know, I always say we'll take that step by step. Last year, Genesis sold about 56,000 cars. But for us, the point is not the volume. We're focused on delivering on design, technology and in experience, and doing that as we launch an SUV and launch electric vehicles to position the brand.

I think we're going to get to 100,000 without pushing it. That's not a milestone, like I have to hit that number. But I think it will happen naturally. And then, the fact is that our plant in Savannah is going to produce a battery-electric Genesis as well. It will be in operation in 2025, and it's going to give us more production.

So no, we're not setting as an objective to be like BMW or Mercedes or anybody. We'll just go step by step, based on design, technology and then experience, and then we'll see where the brand goes.

There was a controversial development at your plant in Alabama this year, where authorities found underaged employees working in Hyundai's supply chain under fake IDs. How did Hyundai respond to that situation and what more can be done?

First of all, we really embrace having a labor force that is healthy and 100 percent in compliance. Our company maintains zero tolerance. So when we learned about the two confirmed cases there, we immediately took action.

We requested immediate changes in top management of the suppliers and in their HR-related functions. For one of the suppliers, because of our history, we were shareholders, and we decided to sell that supplier. We also requested immediate action to prevent a situation like this from happening.

For another supplier, we even requested to have an audit committee with former Department of Labor employees to ensure they put in place a very robust system. We have also deployed specific training to all our suppliers, and we have done our own audits of the suppliers to ensure that this type of issue would not happen again.

I feel we're taking every action we can possibly take. It was a very sad situation.

During the pandemic, automakers across the industry cut the number of vehicles going to fleet customers. Now that production is returning to normal, will Hyundai step up its fleet business?

The interesting thing is that we had already developed a plan together with our dealers who had requested it. Back in 2019, the company decided to do less fleet, and we were well on our way when the pandemic hit.

I'm going to be honest with you, in terms of profits, it's probably better to do fleet than retail. But the dealers didn't have so much inventory. As you probably know, we've been working to develop both the Hyundai and Genesis networks through our Accelerate and Keystone programs. So we stayed the course.

Last year, we did almost nothing in fleet — maybe 2 percent. But this year, the opportunity is huge, and we see some OEMs doing a huge increase and significant mix in fleet. But we are so far at around 8 percent or so. We believe the range of 10 [percent] is kind of healthy and reasonable, so we are not planning to change our strategy.