SEOUL (Reuters) - Hyundai Motor (005380.KS) posted its ninth straight quarterly profit drop on slower sales in China and other emerging markets, a trend the South Korean automaker seeks to reverse by supplying more sport utility vehicles (SUVs) and launching new sedans.
Strength in smaller, fuel-efficient sedans helped Hyundai Motor outperform the industry during the global economic downturn, but has left it reeling from a consumer shift to gas-guzzling sport utility vehicles (SUVs) in recent years, driven by a slump in the price of oil.
Hyundai Motor, the world’s fifth-biggest automaker together with affiliate Kia Motors (000270.KS), reported on Tuesday a 12 percent drop in first-quarter net profit to 1.69 trillion won ($1.47 billion), but higher than the 1.46 trillion won average estimate of 14 analysts polled by Thomson Reuters I/B/E/S.
In China, its biggest market, Hyundai Motor sold 10 percent fewer vehicles in the quarter, as it trailed rivals in tapping soaring demand for SUVs.
“The biggest challenge facing Hyundai is securing its competitiveness in China and maintaining its market share there,” said Kim Sung-soo, a fund manager at LS Asset Management, which owns Hyundai Motor shares.
Revenue rose 7 percent to 22.35 trillion won for the quarter, but operating profit declined 16 percent to 1.34 trillion won.
Hyundai Motor said on Tuesday it will aim to gradually improve earnings by launching its Elantra sedans and boosting SUV supply in the U.S. and China markets.
Hyundai needs to build its fourth and fifth factories in China because of its sustained growth, Hyundai’s chief financial officer Choi Byung-chul said in an earnings conference call. His comments come amid concerns about slowing growth and rising competition in the world’s biggest auto market.
The drop in the company’s China sales came despite the country’s tax cuts on small car purchases, as Chinese local rivals such as Great Wall Motor (601633.SS) offered cheaper SUVs. Hyundai’s global sales declined 6 percent to 1.1 million vehicles in the quarter.
Hyundai, together with Kia, have the highest sales exposure among major automakers to emerging markets, including China, Russia and Brazil, making them vulnerable to a slowdown in those markets, according to Macquarie Securities.
“Emerging market downturn as a result of low oil price has decreased exports from domestic factories while the value of emerging markets like Russia and Brazil declined, offsetting the impact of the weaker South Korean won,” Hyundai Motor said in a statement.
In the U.S. market, where appetite for SUVs and trucks has been strong, Hyundai posted a 1 percent sales rise in the first quarter, weighed down by its sedan-heavy lineup. Strong demand for large SUVs and trucks in North America helped U.S. automaker General Motors Co (GM.N) post bigger-than-expected first-quarter profits.
Hyundai shares closed 2.7 percent higher on Tuesday, compared with a 0.3 percent gain for the wider market .KS11.
Reporting by Hyunjoo Jin; Editing by Muralikumar Anantharaman