Hyundai to Bring New SUV to U.S. After Splurging on Discounts

  • Company had to boost discounts on aging lineup of sedans
  • Hyundai profit hit by decline in China, U.S. deliveries

Hyundai Motor Co. is banking on a new compact SUV to reinforce its lineup and help arrest a slide in sales in its biggest markets, after misjudging the consumer shift away from sedans that forced the South Korean automaker to increase incentives for consumers.

The compact model, called the Kona after a seaside town in Hawaii, will be introduced in the U.S. and Europe in the second half after a home debut last month. The vehicle will join the full-sized Santa Fe and mid-sized Tucson in Hyundai’s portfolio.

Even with the addition, the Seoul-based automaker is predicting a tough end to the year as the pace of American buying slows and Chinese deliveries continue to suffer a backlash over South Korea’s planned deployment of a U.S. missile shield. South Korea’s biggest carmaker Wednesday reported its smallest quarterly net income since at least 2010 after aging models and a sedan-heavy lineup prompted South Korea’s biggest carmaker to boost discounts and a boycott in China dented sales.

“The competition in the U.S. market is likely to intensify on falling sedan demand and slowing SUV sales growth,” Hyundai’s CFO Choi Byung-chul said in call after reporting earnings. “Hyundai will focus on stabilizing the level of incentives and inventories by strengthening the competitiveness of models to improve profitability.”

In the U.S., sales between April and June declined faster than the industry, slumping by 11.5 percent to 177,568 units, according to the company website. Incentives per car rose 42 percent to $3,259 in June. Those levels are among the highest offered by the company since at least the global financial crisis in 2008-09, according to Kim Jin-woo, analyst at Korea Investment & Securities, who recommends investors should buy the company stock.

Hyundai’s operating profit in the April-to-June quarter dropped 24 percent, falling short of analyst estimates. That pushed down the shares, which ended the day with a 1.4 percent gain to 148,000 won.

Sales in other markets aren’t faring well either. The company’s woes in China are compounded by perception that it’s sandwiched between foreign and local brands -- not quite premium enough, yet more expensive than most Chinese offerings.

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.

Overall, first-half sales dropped 8.2 percent to 2.2 million vehicles, making it tougher for Hyundai to achieve its goal of delivering a record 5.08 million vehicles for the full year. A sales recovery in Russia and Brazil is likely to continue, said Vice President Koo Zayong.

New models including the Kona, high-performance i30N hatchback and Genesis luxury G70 sedan will also help in improving Hyundai sales in the second half of this year, the company has said.

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