Hyundai ad model riles dealers

Regional groups don't see benefit in decision to hike wholesale prices 1 percent

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jhalliday@crain.com

Angered by hyundai Motor America's decision to revamp its $300 million regional ad-group program, megadealers are fretting that the change will put them at a disadvantage to smaller dealers-who are equally concerned the plan benefits big dealers over smaller ones.

Under Hyundai's system for the past 20 years, the budget for regional ads is generated by a $500 average ad-dedicated fee on each new-vehicle invoice. It is matched by the automaker when the groups use creative from national shop Richards Group, Dallas, and Carat, New York, which buys the media, dealers said.

The plan eliminates the assessment and instead charges dealers 1% more to buy vehicles wholesale. Individual dealers earn back that 1% from Hyundai for their own advertising by meeting certain criteria, such as special certification for sales and service. The criteria still are being finalized, said Scott Fink, a Tampa, Fla.-area dealer.

Mr. Fink favors the idea but said there was "certainly some voicing of concern" about the plan at a recent meeting in Chicago, which he attributed to Hyundai executives not communicating it well. "There's a significant amount of change, and dealers aren't sure how they will fit in," he said.

Indeed, Doug Fox, a dealer in Ann Arbor, Mich., who sits on Hyundai's dealer council, said big dealers don't like the proposal. The plan "needs to be reworked so large dealers can still maintain their share of voice," he said, noting that the automaker's move to "create efficiencies for smaller dealers" shouldn't come "at the expense of bigger dealers."

another interpretation

A far different interpretation came from another dealer who asked not to be named: "Hyundai is telling small dealers it will abandon them since they won't have enough total [ad] dollars to make an impact in the market."

Steve Wilhite, Hyundai chief operating officer, who outlined the plan to dealers, said he proposed the Hyundai change because dealers' contributions to their ad groups give too much of their gross profit to advertising. "The biggest issue is profitability," he said.

He confirmed that at least 40% of Hyundai dealers are unprofitable, mostly because they also own showrooms for declining Detroit brands.

Mr. Wilhite, who was VP-marketing at Nissan North America when the automaker made a similar change a few years ago, said the dealer groups may be better served by forming smaller groups to hire their own ad agencies. "We are encouraging [the dealer groups] to disband."

Hyundai can't eliminate its five dealer ad groups, which are each independent legal entities.

Under the new plan, dealers said the groups would all but disappear because they wouldn't be funded. Hyundai controls the groups since it collects the fees and distributes ad monies to the associations. Dealers on the groups' boards decide which creative to use and which models to advertise.

And if the plan does go into effect, Mr. Fink predicted dealers will form their own smaller ad associations. "We might hire our own ad agency and do our own buys. We think we can be more efficient."

half the cost

One dealer who asked not to be named said individual dealers can buy local media more cheaply than a national agency, sometimes at half the cost. In addition, the dealer ad groups must pay Carat a 15% commission, he said.

Hyundai reported it sold 359,259 units in the U.S. through September, 10,000 more than the same period last year. The automaker told dealers at the recent meeting it will not meet its goal to sell 500,000 units this year in the U.S., partly due to a monthlong factory strike in South Korea, the spokesman confirmed. Mr. Wilhite told dealers the 2007 goal is to sell 550,000 new vehicles.

In addition to what was laid out by dealers, Hyundai spent $268 million in measured media in the first half of 2006, according to TNS Media Intelligence, a 15% increase from the same year-ago period.
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