Car industry put on the spot

Hyundai Motor Co, the Korean car company, is throwing down the gauntlet to its UK rivals by extending the warranty on its cars from three years to five years – an initiative that industry rivals are playing down.

David Walker, managing director of Hyundai UK – the Lex Services subsidiary that imports the marque from Korea – claims it is the first time any car company has offered such a long warranty. He says: “We are giving our customers five years’ peace of mind.” The move is being backed by a £6m marketing initiative, which includes a £4.3m television campaign created by Leagas Delaney.

Hyundai’s gambit is expected to put significant pressure on rivals to match the offer. But industry experts suggest it is precisely because Hyundai is lagging behind in technological terms that it can afford to mount the initiative. Dr Peter Wells, a senior research fellow at the Centre for Automotive Industry Research, says: “Hyundai has not been that technologically innovative, so their cars are less likely to break down.”

The latest features provide an attractive hook for advertising, but older technology is often more robust and more reliable, Wells argues. Furthermore, cheaper cars have completely different buyer profiles and usage patterns than more expensive ones. On average Hyundai’s cars have lower mileages than many others, and so suffer less wear and tear.

Extending the warranty is also expected to result in the increase of a car’s resale value. More importantly, industry experts see long-term warranties as helping to build brand loyalty, at a time when car companies are losing control over their distribution. The Block Exemption regulations, which have so far meant that car manufacturers can restrict who provides after-sales service and limited dealers to geographic areas, is due to end soon. Longer-term warranties could be a useful tool in encouraging car buyers to stay loyal to a manufacturer’s dealer/service network.

A spokesman for the Society of Motor Manufacturers and Traders (SMMT) says: “It is an indictment of the current state of the industry that a good long-term warranty should be seen as a significant marketing initiative, rather than a standard.”

But Hyundai’s rivals are trying hard to play down the significance of the warranty extension, suggesting that a three-year guarantee is more than adequate because on average most drivers change their cars every three years. A spokesman for Daewoo says: “We feel a three-year warranty is the optimum duration. Our research shows people are not interested in anything more.”

Yet Hyundai’s experience in the US, where it has been offering five-year transferable warranties since 1998, suggests that consumers are interested. In the UK, where Hyundai’s market share is only 1.2 per cent according to SMMT, the car company is hoping for a considerable surge in sales. As Walker says: “We’re a challenger brand. We have to always be looking for something that sets us apart.”

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