Photographer: SeongJoon Cho/Bloomberg

Hyundai Motor Warns of More Uncertainty as Profit Slumps

  • 2Q profit falls short of estimates to 1.34 trillion won
  • Hyundai profit hit by decline in China, U.S. deliveries

Hyundai Motor Co. said its outlook remained clouded after second-quarter profit fell on weaker demand in China amid political tensions, while U.S. incentive costs increased.

South Korea’s largest automaker said it expects a tough second half due to slowing U.S. sales and repercussions from a planned deployment of a U.S. missile defense system, which China objects to. Second-quarter operating income dropped 24 percent to 1.34 trillion won ($1.2 billion), falling short of analyst estimates.

Hyundai Motor’s problems in the U.S. and China -- two SUV-loving markets where its sedan-heavy lineup has struggled -- are compounded by the perception in China that it’s sandwiched between premium foreign brands and more economical local offerings. The company plans to increase its supply of utility vehicle models and introduce a new luxury Genesis brand model in the second half.

“Hyundai’s China sales decline is likely to continue in the third quarter,” Kim Jin-woo, an analyst at Korea Investment & Securities in Seoul, said by phone before the earnings. “The more pressing issue is that the U.S. market is cooling faster than expected. Hyundai will have hard time in the second half in the U.S. before it adds new models in its lineup.”

Hyundai Motor shares pared intraday gains after the earnings announcement, trading 1.7 percent higher at 148,500 won as of 2:39 p.m. in Seoul trading.

The crisis in its two biggest markets comes at a critical time for Hyundai, which has set a record delivery goal of 5.08 million vehicles for 2017, after missing its target for a second straight year. Hyundai’s first-half sales dropped 8.2 percent to 2.2 million cars.

In a bid to regain market share and consumers’ trust in China, where second-quarter sales dropped 64 percent, Hyundai hired former Volkswagen AG executive Simon Loasby to lead its China design team. The automaker also plans to start production at its fifth plant in China in late August.

New models including KONA, its first global compact SUV, first high-performance i30N hatchback and Genesis luxury G70 sedan will also help in improving Hyundai sales in the second half of this year.

In the U.S., Hyundai sales declined far faster than the U.S. industry as it fell by 11.5 percent to 177,568 between April and June, according to company website. Aging models and sedan-heavy lineup contributed to Hyundai’s record level spending on U.S. incentives per car, which rose 42 percent to $3,259 in June.

Hyundai will focus on stabilizing the level of incentives in the U.S. and inventories, Choi Byung-chul, the company’s chief financial officer, said in a post-earnings conference call. A sales recovery in Russia and Brazil is likely to continue, said Vice President Koo Zayong.

    Before it's here, it's on the Bloomberg Terminal.