China row hits Kia’s bottom line

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China row hits Kia’s bottom line

Kia Motors, the nation’s second-largest automaker, saw its profit tumble in the first quarter, affected by soured consumer sentiment in China as well as a stronger local currency against the U.S. dollar.

During the first three months of this year, the car manufacturer sold a total of 658,332 vehicles, a 6.5 percent fall compared to the same period a year earlier when the company sold 704,458 units.

While Kia’s revenue rose 1.5 percent on-year to 12.8 trillion won ($11.3 billion), its net profit fell 19 percent to 765.4 billion won, the company said. “Increased sales of high-end models led to an increase in revenue but other conditions such as the strong won drove down profit,” explained the company in a regulatory filing.

When the won gains against the U.S. greenback, overseas earnings, which are based on the dollar, fall.

A total of 377,315 vehicles were manufactured domestically, taking up 57.3 percent of all production, while 281,017 cars were made in overseas manufacturing plants including Mexico.

While Kia’s U.S. sales went down 12.7 percent, its sales in China showed the most drastic fall of 35.6 percent year on year.

Beijing has been economically retaliating against Seoul for allowing the deployment of a U.S. antimissile system and many Chinese consumers have turned their backs on Korean-made products. Although Kia was once one of the most popular brands in China - with its K3 model the 12th best-selling car there - its sales began falling in March, the company said.

Another negative factor is the costs of recent recalls of vehicles, the company said. Earlier this month, Hyundai Motor and Kia voluntarily recalled more than 1 million cars from the U.S. and Korea due to possible engine defects. That cost KIA about 160 billion won.

Some local analysts believe the freeze in China may thaw soon. “Based on what happened between China and Japan over a territorial dispute in the past, sales could recover around the end of the second quarter or beginning of the third quarter,” said Chang Moon-su, an analyst from Kiwoom Securities.

The company itself is optimistic about future sales. “With economies in emerging economics such as Russia and Africa in recovery, the company will tackle those markets with models fit for locals,” said a company spokesperson. Kia will launch a new plug-in hybrid model of the Niro in an attempt to expand Kia’s presence in overseas SUV markets.

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