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Hyundai Motor Warns of Trade Protectionism as Profit Falls

Jan. 25, 2017
The automaker stuck to its forecast of a rebound in sales this year, made before Trump assumed office.

Hyundai Motor Co. warned of increasing uncertainties with the spread of trade protectionism and intensifying competition, after reporting a 33% decline in operating profit due to domestic labor strife and shrinking demand in Brazil and Russia.

Operating profit at South Korea’s largest automaker fell to 1.02 trillion won (US$875 million) in the three months ended Dec. 31, missing the 1.45 trillion won average analyst estimate compiled by Bloomberg. Net income declined for a 12th consecutive quarter, according to the Seoul-based company.

Hyundai Motor (IW 1000/37) will continue to monitor the policies of President Donald Trump’s administration, which are expected to put pressure on countries that have trade surpluses with the U.S., Koo Zayong, a vice president at the automaker, said on a conference call Wednesday. He reiterated the plan by Hyundai Motor to invest $3.1 billion in the U.S. with affiliate Kia Motors Corp. in the next five years.

The automaker stuck to its forecast of a rebound in sales this year, made before Trump assumed office. Since his inauguration, Trump has withdrawn the U.S. from the Trans-Pacific Partnership trade accord, reaffirmed a campaign promise to renegotiate the North American Free Trade Agreement involving Mexico and met with automakers to persuade them to keep production within the U.S.

Hyundai Motor’s spending on incentives in the U.S., its second-biggest market, increased at a faster pace than the industry average last month, according to researcher Autodata Corp. Warranty expenses rose due to a weaker won, eroding operating profit. The U.S. business environment will be tough this year because SUV sales will probably slow and rising interest rates will hurt demand, Koo said.

Shares of Hyundai Motor declined 3.1% to 142,000 won at the close in Seoul trading, the most since Nov. 10. The benchmark Kospi index was little changed.

The company’s deliveries in South Korea plunged in the quarter after a series of partial stoppages escalated into a full-scale strike in September and the expiry of a tax cut damped demand. The automaker also faces consumer confidence running near an eight-year low and no early end in sight to the presidential and corporate scandals. The nation’s gross domestic product data released Tuesday showed an expansion of just 0.4% in the three months through December, the weakest quarter-on-quarter performance since June 2015.

Demand in China will probably slow this year on an increase in the sales tax, said Koo. Hyundai Motor expects industry sales in its largest market to slow to a 5% gain this year amid more intense competition. The automaker’s SUV sales rose 43% last year in the country, outpacing the 3% growth in sedan deliveries.

By Sohee Kim

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Licensed content from Bloomberg, copyright 2016.

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