Hyundai quarterly profit falls 15%

Hyundai Motor reported a 15 per cent drop in first-quarter net profit as the weaker yen and labour issues eroded the Korean carmaker’s competitiveness.

Hyundai said a recent string of weekend work stoppages at its domestic plants were manageable but that unfavourable currency movements were a worry, with the Japanese yen expected to weaken further to beyond Y100 against the US dollar.

The yen has depreciated about 25 per cent against the South Korean won over the past year, putting Hyundai at a competitive price disadvantage abroad versus Japanese rivals.

“Although concerns on the strong won and weak yen that hurt our cost competitiveness still remain, it will be something that we will be able to manage,” Lee Won Hee, chief financial officer, said on a conference call. “We expect sales contribution from developing markets to increase as the new plants in China and Brazil enhance our productivity.”

Shares in Hyundai closed up 5.7 per cent on Thursday.

Hyundai on Thursday reported a net profit of Won2.09tn ($1.9bn) in the January-March period, compared with Won2.45tn a year earlier. Sales rose 6 per cent to Won21.37tn as strong demand from China offset weakness elsewhere.

Domestic output fell 7.6 per cent in the first quarter as the carmaker ended overnight shifts in March, while production from overseas plants rose 23 per cent.

Hyundai and its affiliate Kia Motors have said they expect sales growth of just 4 per cent this year, which would be the slowest growth for a decade, as they gradually shift focus to quality and brand value rather than volume growth.

Hyundai’s US sales rose just 0.5 per cent in the first quarter, falling far short of the market’s 6.4 per cent growth, while sales fell 11 per cent in debt crisis-hit Europe, where demand was at a 20-year low.

But first-quarter sales in China jumped nearly 40 per cent in the world’s biggest car market, following a territorial dispute late last year between Beijing and Tokyo that fuelled anti-Japan sentiment. Hyundai’s upgraded Santa Fe sports utility vehicle has also been selling well amid growing Chinese appetite for SUVs.

A fresh labour dispute over weekend work is another headache for the company. Hyundai has suffered production losses of 48,000 vehicles worth about Won950bn as its 45,000-strong labour union has refused to work over the past seven weekends, demanding higher compensation.

However, Chung Sung-yup at Daiwa Securities said: “We expect the labour dispute to be resolved soon and the exchange rates to stabilise. Then [Hyundai’s] earnings will improve in the second quarter”.

But he cautioned that the weaker yen would give Japanese carmakers room to improve their cost structure and expand investment to boost their competitiveness.

Analysts say the stronger won and labour problems strengthen the case for Hyundai to expand overseas production, and Mr Chung noted Hyundai would need to increase capacity in the US to increase market share there, citing low inventories.

However, Hyundai has said it has no immediate plans for further such expansion after opening new factories in China and Brazil last year.