Hyundai's Profits at Historic Low
26 January, 2019
Hyundai recorded its lowest operating profit in eight years last year. The carmaker on Thursday said sales inched up 0.9 percent from the previous year to W97.25 trillion, but operating profit plummeted 47.1 percent to W2.42 trillion (US$1=W1,130).
Sales have grown every year since 2010, when they stood at W67 trillion, reaching a record last year, but operating profit has been declining since a peak of W8.44 trillion in 2012 and now stands at just one-third of that figure. With that, Hyundai's operating margin, which stood at 10.4 percent in 2011, has plummeted to 2.5 percent.
The decoupling of revenue growth and operating profit stems from increased proportion in sales of more expensive sedans and SUVs while production and marketing costs soar.
Hyundai executive Koo Ja-young said, "The cost of marketing has gone up due to strong won, and sluggish markets made competition fiercer. We also made more investments in future technologies, a new powertrain and design."
Hyundai is struggling in the two largest markets in the world, China and the U.S., which account for 32 percent of its global sales. Hyundai sold 1.06 million cars in China in 2015 and 1.14 million the following year. But then sales plunged amid an unofficial boycott in China to 780,000 in 2017 and 740,000 last year.
Sales in the U.S. also fell from 762,000 cars in 2015 to 678,000 last year. The main reasons are the weak yen, which made Japanese cars more attractive there, and Hyundai’s lack of the fat SUVs and pickup trucks that are popular among U.S. consumers.
This year's outlook is not rosy either amid a global lack of demand. Choi Byung-chul at Hyundai said, "Protectionist policies in the U.S. and low growth in China will continue, but we are working aggressively to overcome the unfavorable environment by launching a range of new cars."
It just launched the large Palisade SUV last month and plans to add the GV80, the first luxury SUV under the Genesis brand, to the U.S. lineup by early 2020.
In China, Hyundai hopes to rebound with a new mid-sized sedan launched at the end of last year, Lafesta, along with the new Santa Fe and Sonata. "In line with Chinese government policy to promote environmentally friendly cars, we will expand our product range of green cars from current two to five by the end of this year," Koo added.
Hyundai's goal for this year is to sell 4.68 million cars globally, up two percent from last year.
Koh Tae-bong at Hi Investment and Securities said, "There are positive expectations for Hyundai as the company went through a structural change under vice chairman Chung Eui-sun. But there are still uncertainties hovering over it such as possible punitive tariffs in the U.S., rising parts costs and rising labor costs from the increased minimum wage."