Strong won erodes profits at export-driven Kia

Kia Motors Corp., an affiliate of Korea’s biggest carmaker Hyundai Motor Co., posted a loss for the second quarter in a row after a stronger won ate into profits from exports and costs rose. The company had a loss of 200 million won ($212,000) in the three months ended Dec. 31 compared with a profit of 263.7 billion won a year earlier, it said in a statement.
The won climbed to a nine-year high in the quarter, eroding the repatriated value of overseas sales of Optima sedans and Sorento sport-utility vehicles. Kia’s parent, Hyundai Motor, yesterday reported a 31-percent drop in fourth-quarter net income as the won hurt earnings.
“As Kia relies heavily on exports, it’s more vulnerable to currency fluctuations,” said Yun Tae-sik, an analyst at NH Investment & Securities Co., who rates the stock as “market perform.” “Its earnings likely won’t show a meaningful improvement this year either.”
Exports account for more than 70 percent of the Seoul-based carmaker’s sales. The won was 10.5 percent higher against the dollar in the fourth quarter compared with a year earlier. In contrast, the Japanese yen was 0.5 percent weaker against the dollar. A stronger won increases the price of Kia Motors’s exports while cutting the converted value of the exports.
Kia’s year-earlier net income was also inflated by a one-time tax gain and contributions from affliates because of changes in accounting methods.
Sales rose 11 percent to 5.1 trillion won from 4.6 trillion won. The carmaker posted an operating loss, or sales minus cost of goods sold and administrative expenses, of 55 billion won compared with an operating profit of 54.1 billion won a year earlier.
“The operating profit was hurt by the stronger won,” said Kia spokesman Kim Deuk-ju. “Our marketing costs also rose because of fierce competition with Japanese carmakers, who are benefitting from weak yen.” Kia began operation of its 1 billion-euro ($1.3 billion) European plant in Slovakia late last year. Kia is increasing production overseas to fight currency fluctuations. Kia will add a second shift in March in Slovakia. It aims to ship 150,000 vehicles this year and full capacity of 300,000 units in 2009.