Hyundai, Kia Forecast Slowest Growth in Seven Years

Hyundai Motor Co. (005380) and smaller affiliate Kia Motors Corp. (000270), South Korea’s two largest automakers, forecast their weakest sales growth in seven years as a slowing global economy and strengthening won saps demand.

The companies plan combined sales to rise 4.1 percent to 7.41 million cars in 2013, Chung Mong Koo, chairman of both Kia and Hyundai, told employees during a new year address in Seoul today. That’s the lowest growth since 2006, when deliveries shrank 1.2 percent. The sales compare with the 7.43 million average estimate of three analysts surveyed by Bloomberg News.

Chung, 74, told employees to brace for a “very difficult year” and be more proactive to changes in the markets to meet the business targets. The companies are also coping with a won that’s appreciated more than any other major Asian currency in the past six months, undermining their ability to compete globally against Toyota Motor Corp. (7203) and General Motors Co. (GM)

“The automobile industry is relatively more currency sensitive, as fierce competition leads to competitive pricing,” Lee Sang Hyun, an analyst at NH Investment & Securities Co. (016420), said by phone. This in turn leaves companies with little room to factor in the impact of currency movements, he said.

Hyundai, whose shares advanced 2.6 percent last year, fell 1.1 percent to close at 216,000 won. Kia, which declined 15 percent in 2012, dropped 0.4 percent to 56,300 won, while South Korea’s benchmark Kospi index advanced 1.7 percent today.

Slower Growth

The automakers sold an estimated 7.12 million vehicles in 2012, exceeding their goal of 7 million units, Chung said. Hyundai and Kia’s 2013 growth forecast is half the 8 percent increase posted last year.

“2013 will be a very difficult year as the ongoing European crisis and the slowing global economy affect international and domestic markets,” the chairman said.

Still, the forecast exceeds Hyundai’s own projection for industry growth of 3.6 percent, and Toyota’s 2 percent growth estimate for its sales this year.

“Although a 4.1 percent increase doesn’t seem all that impressive, Hyundai and Kia are still poised to be in a better shape than most competitors,” NH’s Lee said. European carmakers, mostly dependent on sales in their region, will continue to struggle this year, he said.

China Deliveries

Hyundai forecast its sales will climb 5.8 percent to 4.66 million vehicles in 2013, 60,000 units more than the average analyst estimate. Kia predicted deliveries will increase 1.1 percent to 2.75 million units, or almost 3 percent shy of the average estimate.

Both carmakers will probably keep increasing market share in Europe and outperform in China, Lee said. Hyundai sales will increase 12 percent in China, 6.6 percent in Europe and 5.3 percent in the U.S. this year, based on Lee’s estimates. Kia sales will rise 5.3 percent in China, 0.9 percent in Europe and 1.8 percent in the U.S., he said.

China is Hyundai’s biggest market, accounting for 18 percent of sales in the first nine months of 2012, followed by the U.S. at 17 percent. The U.S. is Kia’s largest market, contributing 21 percent of sales in the period, while Korea is the second biggest, responsible for 17 percent.

Demand in China, the largest auto market, will help Kia and Hyundai exceed their target of delivering 1.25 million vehicles in the country in 2012, they said in October. The companies’ nine-month sales rose in Europe on demand for models including Hyundai’s i10 minicar and Kia’s Cee’d hatchback.

New Models

Hyundai and Kia will respectively introduce the next- generation Genesis luxury sedan and the new Soul wagon this year, according to Lee of NH and Shin Chung Kwan, an analyst at KB Investment & Securities Co. in Seoul. The companies didn’t immediately respond to queries on new models sent by e-mail.

Hyundai’s net income will probably increase 7 percent to 9.65 trillion won ($9.1 billion) in 2013, while Kia’s may climb 6.9 percent to 4.45 trillion won, according to average analyst estimates compiled by Bloomberg.

Fourth-quarter net income at Hyundai, scheduled to be reported this month, may have risen 12 percent to 2.23 trillion won, according to the average of 25 analyst estimates compiled by Bloomberg. Kia’s profit for the quarter probably gained 34 percent to 1.06 trillion won, based on 24 estimates.

The Seoul-based carmakers, which said in November that they overstated the fuel efficiency of some models in the U.S., will incur combined costs of about 600 billion won in fourth-quarter earnings to reimburse customers, according to Shin.

The inflated energy ratings, for models including the Elantra and Soul, led Kia and Hyundai to offer customers of 900,000 vehicles bought in the past two years prepaid fuel cards to compensate them for the differences in fuel economy compared with what appeared on the cars’ window stickers.

The mileage discrepancies aren’t likely to impact sales at Hyundai and Kia this year, Lee and Shin said.

To contact the reporter on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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