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Drop in China sales hits Hyundai's profit

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October 23
6:33 AM 2015

Hyundai Motor Co's net profit for the third quarter ending September fell 23 percent. The steep fall in China sales coupled with aggressive global incentives impacted the South Korean automobile major's performance in a more negative way.

The strengthening of South Korean currency Won against the US dollar couldn't help the company. Hyundai is facing rough weather in its two major markets, China and the US.

The net profit dropped to Won 1.2 trillion ($1.1billion) from Won1.5 trillion in the previous corresponding quarter. The company's efforts to strengthen sales volume in China and the US markets didn't yield anticipated results. 

Along with affiliate Kia Motors, Hyundai Motor is the world's fifth largest automobile major. Hyundai third quarter results were less than market forecast. About 12 analysts in a survey by Thomson Reuters predicted an average estimate of Won1.5 trillion. But, Hyundai ended up with Won 1.2tn net profit.

Speaking at an earnings conference, Hyundai's Chief Financial Officer Lee Won-hee said: "During the third quarter, Japanese companies utilized the weak Yen to focus marketing in the US market. We increased incentives in response."

Hyundai's shipments to Chinese market dropped 17.4 percent to 214,414 vehicles. This is weakest sales volume in the China market since the second quarter of 2012. Analysts before results predicted that Hyundai's sales volume reached its bottom level and may rebound in the fourth quarter.

The third quarter profit was the smallest net profit for Hyundai during the past five years. Sales dropped in not only China and the US markets, but also in emerging economies as well. Hyundai suffered sales drop in Brazil, Russia and other markets. The reduction in purchasing power in emerging economies affected the Hyundai sales performance. Previous gains of Won increased marketing costs for Hyundai.

Hyundai reduced prices of sports utility vehicles in China and revamped the marketing team to give a boost to slowing sales. The decline in China sales for Hyundai is the first time since 2009 global financial crisis. The China's economy slowdown weakened the demand for new models.

Meanwhile, South Korean Won started weakening against the US dollar and this is likely to help Hyundai in overseas markets. Won fell 12.2 percent against the US dollar during July and September. Adding to this, a series of new models being launched by the automobile major will also help Hyundai enhance sales volume. 

Considering the latest fiasco over Volkswagen emission scandal, Hyundai is planning to launch 22 new environment-friendly models by 2020. It's focusing more on technology research.

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