China consumer backlash cuts Hyundai Motor profit by a fifth

Hyundai Motor is forecasting a gradual recovery in earnings after first-quarter profit dropped by a fifth, dented by a consumer backlash in China and rising protectionism in the US.

The results were better than had been expected, however, and drove shares in the South Korean carmaker up 4.5 per cent on Wednesday. The broader market gained 0.5 per cent. 

However, Hyundai maintained a note of caution, warning that anti-Korea sentiment in China over the US missile defence system and Washington’s protectionist leanings under the Trump administration continue to weigh on its outlook. 

“Concerns over our sales and profitability are growing amid business uncertainties due to the US protectionist policy and the Chinese issue,” Choi Kyung-chul, Hyundai’s vice-president, said on Wednesday. “Despite the growing adverse external factors, we will strengthen our competitiveness by launching a new SUV model and the new G70 Genesis car.” 

Hyundai Motor said first-quarter net profit fell 21 per cent to Won1.4tn ($1.2bn). That marked a 13th consecutive year-on-year decline, but it was better the Won1.25tn average estimate of analysts polled by Thomson Reuters. Operating profit dropped 6.8 per cent from a year earlier to Won1.25tn while sales increased 4.5 per cent to Won23.4tn. 

Analysts said the carmaker was cushioned by improving sales in emerging markets including Russia, Brazil and India, which helped offset falling sales in its two biggest export markets, China and the US. Earnings were also buttressed by its new Grandeur sedan and Genesis G80 at home while the Creta, its new small sport utility vehicle, sold well in emerging markets. 

Chung Sung-yop, an analyst at Daiwa Securities, said he expects Hyundai’s earnings to benefit in coming quarters from a better product mix and improving conditions in emerging markets. 

“Hyundai’s profits are expected to rebound this year, ending the past five years of profit declines,” he said. “Its product cycle is improving across the board and the business environment in emerging markets except China is improving, while the company is aggressively cutting costs.” 

Sales of Hyundai vehicles in China, which accounts for more than one-fifth of the carmaker’s sales by volume, sank 14 per cent in the first quarter as the brand was shunned by consumers angry over Seoul’s installation of a US missile shield. Hyundai said it would respond “flexibly” by introducing China-specific models and its first electric vehicle there this year. 

The political tension has compounded the company’s failure to compete effectively with Chinese rivals offering affordable SUVs. Its sedan-heavy line-up has meant its sales in the world’s largest car market were already damped by a partial rollback of a sales tax cut at the beginning of the year.

In the US, Hyundai had to increase its spending on incentives by 15 per cent in the first quarter to stem a fall in sales.

It was also sideswiped by the recall of nearly 1.5m cars in North America and South Korea over defective engines, which cost the company about Won200bn.