Sonata warning signs surface Mark Rechtin Automotive News / March 27, 2006 - 6:00 am LOS ANGELES -- Last year, Hyundai Motor America touted the redesigned 2006 Sonata as capable of taking on the Toyota Camry and Honda Accord. Part of that was bringing its sales volume into the big leagues of 150,000 units a year. Yes, the Sonata is reaching its sales targets this year. But how Hyundai is getting those Sonata sales suggests potential long-term trouble for the automaker's volume leader. Hyundai is pouring vehicles into daily rental fleets. Retail incentives exceed the entry-mid-sized segment average, according to Power Information Network data. Worse yet, the Sonata takes more days to turn than the segment average. Its transaction prices are declining as well. Hyundai's goal of increasing the redesigned Sonata's sales by nearly 50 percent over the previous design's total - in a shrinking segment, no less - is a daunting challenge, acknowledges John Krafcik, Hyundai's vice president of product development and strategic planning. In 2004, Hyundai sold 107,189 Sonatas. Krafcik says the warning signs are being addressed, or can be readily explained. Since Sonata's launch last summer, about 30 percent its sales have been to daily rental fleets, according to CNW Marketing Research of Bandon, Ore. That is on the cusp of being dangerously high because it risks diminishing the brand's reputation, says CNW President Art Spinella. On the plus side, Hyundai is getting a "fairly decent" price for its fleet sales, Spinella says. "It's not a fire sale like Ford Taurus was at the end of its life." For a brand that has low awareness among shoppers, fleet sales can be a necessary evil, says Krafcik. He says Sonata fleet sales are right at the mid-sized sedan segment average. "We need to get butts in seats. Fleet is a way to do that." Just as important is getting more retail consumers to buy the Sonata. As for incentives, Hyundai has a $500 cash-back deal on the four-cylinder Sonata, and $1,000 on the V-6. It also has $1,000 cash for Hyundai owners, which accounts for about 30 percent of Sonata deals. There also is $1,000 for those who finance through Hyundai Motor Finance, about 60 percent of the deals. Data from the Power Information Network show Sonata transaction prices have declined since launch. In August, Hyundai's average transaction price was $19,805, but that has slid steadily to $18,868 in February. Krafcik says that is due to Hyundai's model mix leaning more toward four-cylinder engines. The increased days to turn comes from Hyundai cranking up its Alabama manufacturing plant in anticipation of Job 1 of the Santa Fe sport wagon. When the plant has to concentrate on starting Santa Fe production, Sonata output will decline. Krafcik said Hyundai was trying to get dealers enough inventory to carry them through the fallow months. Hyundai also is restructuring its pricing and options packaging by pulling forward its 2007 model year release. The 2007 model, which will arrive in May or June, will give the four-cylinder model more standard features and a realigned pricing structure.