Hyundai Courts Brand Prestige With Hermes Model Makeover

Ahn Young-Joon

South Korean carmaker Hyundai Motor hopes a touch of Hermes will make its priciest sedan as desirable as the French retailer's exclusive handbags and catapult its cachet into the same league as luxury European rivals.

Hyundai Motor Group ranks fifth among the world's top-selling cars, but the company wants to shed its value-for-money image and start charging premium prices to counter growing competition at home from BMW, Audi and Mercedes as well as mid-range models by rivals such as Ford Motors.

Hermes, makers of the coveted Birkin and Kelly handbags that start at around $9,000, remade the interior of three, not-for-sale Equus models that will be showcased at the Seoul motor show from Thursday. The tie-up comes two years after an attempt to sell Prada-designed cars failed to draw customers.

(Read More: Hyundai Motor Posts Surprise Profit Decline, Shares Fall)

"The model is aimed at improving brand image," Cho Won-hong, Hyundai's chief marketing officer, told reporters. Luxury group LVMH owns a stake in Hermes, which used its signature leather and equestrian-inspired logo in the Equus, named after the Latin word for horse.

Hyundai and affiliate Kia Motors are fighting to maintain market share after the government implemented free-trade agreements with Europe and the United States. Imports accounted for 10.1 percent of car sales in South Korea in 2012, about 10 times more than a decade ago.

Luxury By Association

In 2011, Hyundai commissioned Italian luxury fashion house Pradato co-design a limited-edition line of Genesis sedans intended to compete with Mercedes and BMW in its affluent home market.

The initiative flopped. Hyundai sold just a third of the 1,200 cars it had initially targeted, highlighting the depth of what the company itself calls an image problem.

(Read More: Hermes Posts Record Margin, Beats Forecasts)

Hyundai's own research shows that even more consumers would flock to buy popular models like the i30 hatchback if only it were made by a different carmaker.

"The Hyundai brand does not have a prestige perception," said Jack Trout, head of global marketing strategy firm Trout & Partners. "Adding Hermes and Prada to their cars doesn't solve this basic problem."

Hyundai may be able to fix its branding issues by parceling out premium offerings in a similar fashion to what Toyota Motor has done with its Lexus brand, Trout said.

Japan's Nissan Motor and Honda Motor have also tried to do the same with up-market brands.

(Read More: Europe's Auto Market Shrinks Further in February)

Hyundai has however, rejected this approach, saying premium brands created by mass market automakers fail to replicate the success of traditional luxury brands.

"We have concluded that we can do it with only Hyundai brand," said Cho.

In addition to courting established luxury labels, Hyundai's rebranding initiative, led by heir apparent and Vice Chairman Chung Eui-sun, includes a plan to double advertising in Europe to an estimated 630 million euros ($821 million) and a revamp of its showroom in Gangnam, the affluent Seoul neighborhood.

(Read More: US Auto Sales Expected to Drive Past 15 Million in 2013)

The tie-up with Prada "significantly" helped to raise Hyundai's brand image, Cho said. Analysts are more skeptical.

"You cannot offer upmarket prestige with a downmarket brand no matter how fancy you make it," Trout said.