By Choi Kyong-ae
Hyundai Motor on Thursday reported a 7.8% decline in its first-half profit as sluggish local demand and output losses at its domestic plants cut into the bottom line.
“Slowing demand at home market and disruptions in local production drove down profits but solid sales in overseas markets minimized the profit fall,” Hyundai Motor Chief Financial Officer Lee Won-hee said during a conference following the earnings release.
Net profit for the six months ended in June 30 fell to 4.611 trillion won ($4.1 billion) from 5.001 trillion won a year earlier, the company said in a statement.
Lee said overall business environment will remain unfavorable for the company in the second half as U.S.’ possible exit from its quantitative easing programs and China’s stricter restriction on gas emissions may put pressure on the company’s performance.
“Among major markets, demand in Europe will likely remain weak throughout the year before it starts to perk up in 2014,” the CFO said. “So we are making an extra effort to bolster sales of subcompact models such as the i20 particularly in east Europe.”
The won’s strength against the dollar and the yen remain a major concern for the maker of the Elantra compact and the Santa Fe sport-utility vehicle.
Dealing a heavy blow to Hyundai’s earnings in the January-June period, plant workers from the company’s 45,000-member union refused to work weekends for three months, demanding higher wages. This ended in June 1.
The industrial move came after the implementation of a new shift arrangement that resulted in lower wages for weekend work. The idling of plants resulted in production losses of 83,000 vehicles valued at 1.7 trillion won. The union went back to work as the company offered a revised higher offer.
As a result, sales of vehicles built at Hyundai’s domestic plants fell 7.1percent in the first half, which was partly offset by a 23 percent increase in sales at its overseas plants.
Hyundai sold 2.39 million vehicles in global markets in the first half, about 50 percent of its sales target of 4.66 million for the year.
First-half operating profit declined 7.7 percent to 4.275 trillion won compared to 4.631 trillion won a year-ago. Sales rose 5.8 percent to 44.551 trillion won from 42.105 trillion won.
Hyundai faces another headache in the local market. Imported carmakers are taking customers away from Hyundai and other local carmakers, taking advantage of lower tariffs following the free trade pacts with the U.S. and Europe.
In a move never expected earlier, Hyundai has cut prices of its flagship models such as the Sonata midsize sedan and the Tucson sport-utility vehicle several times since early this year to compete against import brands such as BMW and Volkswagen.
Import carmakers accounted for 10 percent of Korea’s passenger car market last year. Seven out of 10 foreign cars sold in Korea were from Germany in the first six months.
BMW is the biggest beneficiary of a soaring demand for diesel models in Korea as half of the vehicles it sells here are diesel-powered ones.
“We are planning to launch a diesel lineup to compete against import brands in the domestic market later this year,” said the CFO.
The first diesel-powered sedan will be the luxury Genesis, Hyundai said.