Beating the gray

First she thought of suing them. Then she thought of wooing them. In the end, Fe Agudo realized she didn’t really have to do anything to win. The gray market died a natural death.

The general manager of Hyundai Asia Resources Inc. (HARI) is proud to report to Hyundai Motor Company of South Korea that its official distributor in the Philippines had scored a major victory on those independent importers or gray marketers who used to sell Hyundai vehicles in the country.

During the regional dealer’s conference of Hyundai in Kuala Lumpur, Malaysia this week, Agudo is expected to report that most independent Hyundai importers in the Philippines have either turned into authorized dealers or closed their shops completely.

"Before we were thinking of suing them but our lawyers discouraged us from doing so," Agudo recalled. "Our lawyers said these gray marketers would die a natural death. True enough, those who didn’t join us are now out of business."

Hyundai Korea set up HARI as a joint venture with Filipino businessmen to counter the growing gray market in the Philippines. Not that it didn’t want more people selling Hyundai vehicles here, but it wanted a legitimate organization to control the selling and ensure that buyers get the best value for their money and the warranty and after-sales service they deserve.

The gray market for Hyundai vehicles, particularly the bestselling Starex vans, came alive after the deal between Francisco Motors Corp. (FMC) and Hyundai Korea went sour. FMC was the first to bring in the Starex vans here, but after it stopped its importation, independent importers took over and served the demand for the good-looking people hauler.

The indiscriminate importation, however, turned out out to be bad for Hyundai. Units that were supposed to be sold only in Korea were brought in, causing problems in the process. Apparently, those units were not meant for tropical use, and their undercarriage parts were not designed for the Philippines’ pockmarked roads.

What followed was a nightmare for HARI.

"We were greeted with complaints on problems that were never our doing," said Agudo. "Those units were not supposed to be brought here in the first place but we are now servicing them for problems that should not have come up if not for the gray market."

Killing them softly

In HARI’s first months, Agudo thought of closing their service centers to vehicles that came from the gray market.

"The gray marketers were telling their buyers to buy from them and go to us for service. That was unfair. So initially, we thought of refusing those buyers if they go to us for repairs," she recalled.

"Then we thought of charging them a premium. But we realized later on that it is our moral responsibility to help these Hyundai owners. Now we charge the same rate to everyone, regardless of whether they bought their units from the gray market or from our authorized dealers," she said.

The gray market proved to be a tough opponent, though. When HARI started advertising its prices, the gray market advertised a much lower price. HARI was forced to follow, until it could no longer slash the price tag without losing. It was then that HARI asked for subsidy from Korea.

"That was the only way to fight," Agudo said. "They lowered the price, we lowered it too. Luckily, Korea supported us."

In the months that followed, HARI wooed big importers to turn into authorized dealers and it helped them set up their service centers. HARI itself put up a training center for technicians and in no time, the service centers were churning up mechanics adept on Korean technology.

But HARI knew it had to strike hard to once and for all force the gray marketers out of business. Its killer blow came late last year when, after assessing the situation, it started to offer a three-year, 100,000-kilometer warranty on all its vehicles.

"That’s something the gray market could never offer," Agudo was proud to say. "Dun natapos ang boxing."

Ready to roll

With the gray market down and out, HARI is ready for more serious business.

The company just moved to its headquarters at the second floor of the building which General Motors used to occupy along Pasong Tamo extension in Makati. The building’s ground floor is now being fixed to house the Hyundai Makati showroom.

Agudo said HARI will be launching at least three new models this year on top of the 2003 Starex which is now selling like hotcakes in all of HARI’s 10 dealers.

"The Starex has proven to be a tested product. It was a case of love at first sight for Filipinos. We fell in love with the Starex the moment we saw it even though we haven’t heard or read anything about it," she said. "Now that more than 25,000 Starex vans are running on Philippine roads, we believe the market is ripe for other Hyundai vehicles."

Agudo refused to reveal details but she said HARI would be launching a compact sedan next month. According to her, the car has a very interesting name, is fully-packed with features, and was specifically designed for the youth and women buyers.

"Of course the price is very reasonable," she said.

In the meantime, she encourages people to take a look at the 2003 Starex which now comes with innovative features such as a built-in DVD player, hands-free telephone system, and a more luxuriously appointed interior.

"And the best thing is the Starex is a real 10-seater," she stressed. "With the debate on the excise tax, the Starex is a true winner."

Well, that’s a different and more complex story altogether.