Hyundai Motor Group reports ugly first quarter

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Hyundai Motor Group reports ugly first quarter

Hyundai Motor Group, the world’s fifth-largest automotive group that owns Hyundai Motor and Kia Motors, suffered a cruel first quarter as earnings from its top subsidiaries plunged, while efforts to enhance its brand value hit a road block.

The nation’s second-largest conglomerate, controlled by Chairman Chung Mong-koo, was one of the companies expected to have inferior performance in the first quarter with a weak yen benefiting Japanese automakers in overseas markets. Hyundai announced Thursday that operating profit in the first quarter plunged more than 10 percent from a year ago and net profits dropped nearly 15 percent.

Things were worse at Kia, which reported yesterday operating profit slid 35.1 percent year-on-year to 704.2 billion won ($633.1 million), while sales decreased 6 percent.

In addition, Kia’s consolidated net profit was down 34.7 percent to 783.9 billion won from last year’s 1.2 trillion won.

Analysts said Kia’s numbers were worse that Hyundai’s because its overseas production is much smaller. Hyundai sold a total of 1.17 million vehicles worldwide in the first quarter, up 9.2 percent from last year, but Kia saw only a 1.6 percent increase after selling 702,195 units.

Following the two automakers, Hyundai Mobis, the nation’s largest auto parts maker, also said yesterday that its first-quarter operating profit fell 11.7 percent year-on-year to 634.4 billion won, despite a sales increase of 10.5 percent year-on-year to 8.1 trillion won. Net profit dived more than 150 billion won to 776.6 billion.

The first-quarter performance of Hyundai’s automobile business trio contrasts with that of some other companies. Mando, an auto parts maker under Halla Group, said its sales and operating profit each were up 9.1 percent year-on-year to 1.3 trillion won and 81.5 billion won, respectively. Net profit increased 17.7 percent.

Ssangyong Motor, the nation’s smallest automaker under India’s Mahindra & Mahindra, posted a net loss of 9.7 billion won in the January-March period, but that was a big improvement from a year ago when it lost 31.5 billion won.

Ssangyong said yesterday its operating loss also narrowed to 17.3 billion won, from 30 billion won a year earlier, while sales rose 16.7 percent to 751 billion won. The company sold 13,293 units in Korea in the first quarter, a year-on-year increase of 37 percent.

Hyundai said the weak yen is a problem, but believes the currency’s impact could be limited in the future as Japanese automakers also rely on production overseas. Hyundai Motor’s Vice President and Chief Financial Officer Lee Won-hee said in a conference call Thursday that Toyota, Honda and Nissan produce more than 60 percent of their products outside Japan.

Industry insiders say that what hurt Hyundai more was damage to its brand value following a massive recall of 1.7 million vehicles in the United States earlier this month due to faulty brake light switches. Both companies said that these recalls won’t affect financial stability much, noting they have set aside more than 90 billion won and 40 billion won for the recall.

Hyundai also faced fierce criticism recently days after its European unit released an advertisement showing a man who failed to kill himself via carbon monoxide poisoning in its ix35. The ad, created by Hyundai’s advertising arm Innocean, apparently tried to emphasize that the ix35 fuel cell car’s emissions are water, not carbon monoxide; instead, it prompted a public apology.

In a bit of good news, Hyundai finally reached an agreement with its labor union last night to resume weekend overtime work starting May 4.

By Joo Kyung-don []
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