Korean Automakers Make Inroads Into the Luxury Car Market

Hyundai and Kia are working hard to build premium, luxury cars that will shed consumer perception of their models as cheap and no-frills.

Jan 6, 2014 at 3:40PM

Will the luxury car market make room for automakers with a past like Hyundai (NASDAQOTH:HYMTF) and Kia Motors (NASDAQOTH:KIMTF)? Both automakers seem to think so.

Hyundai, along with its corporate sidekick Kia, is launching new models that are expected to compete in the luxury car segment against such formidable rivals like the BMW (NASDAQOTH:BAMXF) 5-Series and Daimler's (NASDAQOTH:DDAIF) Mercedes Benz S-class. Hyundai has come a long way since the 1990s, when the automaker's "econobox" models were known for their lack of power and features.

In the last decade or so, Hyundai has worked to turn its brand around by focusing more on performance and features found in luxury car models. Part of the brand's transformation can be attributed to the hiring in 2006 of Peter Schreyer, a well-known designer from Audi. Schreyer is the mastermind behind Kia's Soul and Optima models. Other more basic models, like the Hyundai Accent and Kia Rio, also have been redesigned and upgraded .

The K900 is the latest addition to the premium car line

Hyundai's new baby, the K900 sedan, is set to enter the market in Spring 2014. The price of model has not been released and the company states it will release more details as the launch date approaches. It's considered a near-replica of the Hyundai Equus premium sedan, which received good reviews went it came out in August 2013. The K900 is shorter than the Equus, but shares its V-8 engine and its rear-wheel drive is powered through the same 8-speed automatic transmission.

The K900 is also available with a V-6 engine, normally found in Hyundai's Genesis sedan. The model has plenty of new technology, such as a full color display for speed, navigation, and safety alerts. Safety features include "...blind spot monitoring, lane departure warning, front and rear park-assist sensors and cameras." Infotainment features include a 17-speaker audio system, Bluetooth hands-free calling, and HD and satellite radio .

While Hyundai has not released a sales target for the K900 model, its other premium model, Genesis, has captured consumer attention. The Genesis has won numerous awards, like the Top Picks award from Consumer Reports and a J.D. Power award for most dependable mid-sized premium car. Hyundai has been opening more showrooms to expand its sales network of premium models . The Genesis and Equus made up 3% of 2013 U.S. retail sales through November , selling about 21,000 units. Asia is the company's largest sales region, capturing 32.1% of 2012's global retail sales, followed by North America, with 19.1% .

Fierce competition in the luxury car segment

In comparison, rival BMW's 5 series models had sales of 270,902 units during the first nine months of 2013, making up about 19% of total automotive unit sales of 1.4 million. The 5 Series model sales were up by 2.7% versus the same period in 2012. The increase in sales was carried by the 5 Series Sedan, which offset lower sales of the Touring and Gran Turismo models. The results also reflected sales of revised 5 Series models that launched in July 2013. Like Hyundai, BMW also has a strong presence in Asia and the Americas – in fiscal 2013's third quarter, sales in the U.S. were up 17.1% and sales in Asia were up 24.5% .

Like Hyundai, Daimler has also been working on new models. The company noted in its fiscal 2013 third quarter report that most of its capital and research expenditures were spent in the production of the new Mercedes-Benz S-Class models. The new S-Class is expected to contribute significant growth to Mercedes-Benz, especially in the U.S. and China. Due to the redesign, third-quarter unit sales for the S-Class were down, but Mercedes-Benz Cars did have record sales of 395,400 units, an increase of 14% and revenue growth of 8%.

The company considers the S-Class, currently available in Europe, to be "the single, most important new model in 2013." One of the highlights of the new model is its Intelligent Drive technology, which makes Mercedes-Benz the first automaker to show that hands-free assistance is accessible during long distance and city driving .

My Foolish conclusion
Hyundai and Kia have formidable rivals to contend with in the luxury car segment. European luxury car brands carry a certain appeal that may be difficult for a Korean automaker to attain. And let's not forget about the fickle consumer, whose perceptions can be slow to change. If Hyundai and Kia's premium models deliver what luxury consumers are searching for, they may just give European luxury automakers a run for their money.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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