By Kim Tong-hyung
Staff Reporter
The Hyundai-Kia Automotive Group had been touted among the rare auto giants that may avoid being crippled by the bleak state of the global car industry.
However, with the contraction of demand in domestic and major export markets proving more dramatic than predicted earlier, it seems fair to question whether South Koreans are more vulnerable than previously thought.
Granted, it's not that the world's fifth-largest carmaker is closer than others to hitting the panic button.
In fact, many industry watchers still pick Hyundai-Kia as the best bet among the global top-10 to finish the year in the black, no small feat in an industry where the talk is predominantly about survival rather than profit.
The group's competitiveness in smaller vehicles, as well as its diversified sales and manufacturing networks around the world, had been expected to provide new opportunities in exploiting the economic crisis.
However, with the collapse of demand in key markets such as the United States and Europe becoming more evident, and growth also slowing in emerging markets such as Brazil, Russia, India and China, Hyundai-Kia finds itself limping with the others.
According to industry figures, the country's five passenger carmakers _ Hyundai Motor, Kia Motors, GM Daewoo, Renault Samsung and Ssangyong Motor _ combined to sell around 204,470 cars in Korea and other countries last month, representing a 42 percent drop year-on-year, not counting products manufactured and sold overseas.
The 13,960 in exports represented nearly a 49 percent decline, while the domestic sales of 73,537 marked a four-year low. Hyundai's 35,396 cars sold in January was the company's lowest monthly figure since July of 2006.
Demand for automobiles in the U.S. is expected to decline by 15 to 20 percent this year compared to 2008, and the European market could also contract by more than 20 percent, Hyundai-Kia officials said.
Most of the major car markets around the world, aside from China, saw sales drop by more than 20 percent in January, according to recent industry figures.
``Nobody expected the first-half of 2009 to be good, but it is also true that the volume of sales is worse than what most had predicted,'' said an industry official who was unsure the global car market has come close to hitting bottom.
``Hyundai-Kia is fortunate that the freefall of the local currency has given it somewhat of a cushion, but the group should be concerned that the sluggish sales will be manifested more clearly once the Korean won starts to regain its value. It's becoming increasingly apparent that the group will be just as affected by the global downturn as everybody else,'' he said.
With December and January going down has historically bad months for the global car industry, and things only gradually picking up at the start of February, industry insiders are refraining from making projections until they see how things unfold in the second-half of the year.
``Guessing demand is utterly meaningless at this point, as the global car market hasn't experienced such a dramatic contraction of demand since the 1960s,'' said Lee Sang-hun, an analyst from Hana Daetoo Securities, who predicted that Hyundai-Kia's earning reports through the first-two quarters would be ``ugly.''
``To look at the upside, it's hard to imagine demand in markets such as the U.S. and Europe to get much worse than it is now, although debate remains over how long it will take for the markets to hit bottom.
``Hyundai will get its opportunity in the U.S., where it has competitiveness in smaller cars with better fuel efficiency, as the market is not yet ready for cars like the Chevrolet Volt and other plug-in hybrid vehicles. However, strengthening its presence in Europe would be a more difficult challenge,'' he said.
Hyundai is looking to take full advantage of the soaring won-dollar rate by aggressively expanding its marketing expenses, as evidenced by its sweetening of its warranty offer to U.S. customers.
With capacity so severely exceeding demand, Hyundai-Kia could also pay for its lavish spending in factory-building in recent years, and the group is starting to mothball its factories to lower production levels.
Hyundai plans to cease production as its Asan manufacturing line for four days next month, and to shutdown its Ulsan factory, which assembles its Tuscon sports utility vehicles (SUVs), for six days. Kia also halted production at its Gwangju factory for three days earlier this week. These measures will cut the group's production by around 10,000 cars, Hyundai-Kia officials said.
Analysts predict Hyundai's factories to operate at around 70 percent of their capacity during the first-quarter of the year, compared to 44 percent at its American factories and 34 percent at its Czech factories.