+ A

Hyundai hopes to turn around a dismal first half

Korea’s top automaker has seen falling sales in the U.S. and China
July 10,2017
The country’s top two conglomerates are walking down different paths this year.

While Samsung Electronics has enjoyed record-breaking performances in the first half, Hyundai Motor continues to struggle at home and abroad.

Samsung Electronics in the second quarter alone is estimated to have seen both revenue and operating profit reach new heights since the company was founded in 1969. Revenue alone is estimated to have reached 60 trillion won ($52 billion). That means the company has made roughly 153 billion won a day on average during the second quarter.

Operating profit is estimated at 14 trillion won. This has helped raise the company’s profit margin to 23.3 percent, also an all-time record.

The electronics company’s profit is expected to further increase after it started operation of its semiconductor production plant in Pyeongtaek, Gyeonggi, the largest in the world, last week.

Hyundai Motor, on the other hand, has been struggling since the beginning of the year.

The company’s revenue increased 4.5 percent in the first three months of the year to 23.4 trillion won, but operating profit compared to the same period last year has shrunk 6.8 percent to 1.25 trillion won.

There is already speculation that Hyundai, Korea’s leading automaker, will be unable to keep operating profit above the 1 trillion won mark. If that’s the case, it would be the first time the company’s operating profit has fallen below 1 trillion won since 2010.

The reason for the dismal prediction is worsened market conditions for the automaker in the second quarter. Hyundai Motor’s sales in China have been falling persistently since April. In June alone, the company has seen a 47 percent drop in sales from last year to 428,800 cars. The sales drop comes at a time when China continues to pressure Korean businesses in protest of an antimissile system that the U.S. military is installing on Korean soil.

Additionally, competition among automakers in the Chinese market has heightened.

Sales in the United States have also been falling for the past three months. Last month alone, Hyundai Motor has seen sales in the U.S. fall 19.3 percent to 54,507 cars. This has led to a revenue drop of 7.3 percent in the United States, a stark difference from Japanese automakers that have enjoyed double-digit growth during the same period. The biggest rival, Toyota, saw its sales increase 13.7 percent and Nissan 10.3 percent.

The United States is a major market for the Korean automaker as American sales account for 68 percent of overall revenue, but China and the U.S. aren’t the only areas where Hyundai Motor is worried. Last week, Europe and Japan, after four years of negotiation, agreed on the terms of a free trade agreement, and after the announcement was made in Brussels, the Korea International Trade Association released a study saying the Korean automotive industry would suffer most from the FTA as its price competitiveness in Europe would weaken. Japanese cars already sell more than Korean vehicles in the European market. Last year, 1.92 million Japanese cars were sold, more than double Korea’s 940,000.

For Korean automakers, exports are a significant source of income, accounting for 80 percent of revenue.

Adding to Hyundai’s troubles, the company’s labor union is preparing to go on strike after wage negotiations with the company’s management failed Thursday.

Concerns surrounding the automaker have been reflected in the company’s stock. Hyundai Motor’s share value has been falling in the past four trading days, and aware of the situation, Chung Mong-koo, Hyundai’s chairman, is said to be preparing a strategy to turn the situation around in the second half after receiving reports from the automaker’s heads of overseas operations later this month.

Some analysts project a turnaround for Hyundai Motor in the second half with the introduction of several new cars including its subcompact SUV Kona, named after the island in Hawaii.

“With the expansion of its product lines including new vehicles, Hyundai Motor will be strengthening its competitiveness while preparing for its mid-level growth engine,” said Lee Myung-hoon, an analyst at HMC Investment Securities.


BY CHUNG JIN-WOO, LEE HO-JEONG [lee.hojeong@joongang.co.kr]