Hyundai Motor Pins Revival on China Boost After Profit Slumps Again

BY :SOHEE KIM & JOYCE LEE

JULY 23, 2015

A logo of Hyundai Motor is seen on a glass door at a company branch in Seoul on July 23, 2015. Hyundai Motor Co. said on July 23 its second-quarter net profit plunged 23.8 percent from a year earlier, due to a strong won and increased competition at home and abroad. (AFP Photo/Jung Yeon-Je)

Seoul. South Korea’s Hyundai Motor will court China’s bargain-hunting drivers with more aggressive discounting and sportier cars after weak April-June sales in its biggest market sealed the automaker’s sixth straight drop in quarterly profit.

The firm, which with affiliate Kia Motors ranks fifth in global auto sales, said net profit slumped 24 percent in the quarter to 1.7 trillion won ($1.46 billion), matching estimates. Sales were also weak in the United States and the won’s strength compared to the currencies of Japanese and European rivals continued to hurt Hyundai on exports.

The automaker said shipments to China in the quarter dropped by around 14 percent from a year earlier as competition intensified and growth in the world’s second-largest economy slowed. While discounting will hurt profit margins, Hyundai is counting on higher sales volumes to make up the shortfall.

In China, Hyundai will “increase (sales) incentives to minimize the price gap with local carmakers, increase marketing costs and bring forward the launch of its SUV (sport utility vehicle) model”, Chief Financial Officer Lee Won-hee said during a conference call.

Second-quarter profit was also squeezed by increased spending on sales incentives to lure customers in the United States, where Hyundai’s limited SUV range has cost it market share. The rising popularity of foreign cars in South Korea has also undercut its long-dominant position at home.

The lengthening sequence of profit drops has discouraged investors, with shares having fallen about 22.5 percent so far this year as of Wednesday’s close. Hyundai Motor shares have slid close to their lowest level in nearly five years.

In a move to soothe investor concerns, the automaker said earlier Thursday it will pay an interim dividend for the first time ever, of 1,000 won per share. The shares closed 5.3 percent up, compared to a flat wider market.

Hyundai plans to pay out 15 percent of profit in dividends in the short term, and eventually match the payout ratio of global automakers — around 25-30 percent — in the mid-to-long term, CFO Lee said.

The automaker also expects second-half sales to improve due to revamped model launches outside China. It is expected to start selling its Tucson SUV in the US market at the end of July, and in Europe in August. It has already launched the Creta, a small SUV, in India.

It will also launch new versions of its Elantra sedan and Equus luxury models this year.

Reuters

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