South Korean automaker Hyundai Motor Co and affiliate Kia Motors Corp said on Friday they are cutting production to adjust to declining sales as the two suffer a heavy reliance on sedans in times of a global boom in SUV demand and a weaker yen giving advantage to Japanese rivals.
Hyundai pared production by 25% at its plant in Asan on May 28th and 29th, while Kia cut working hours at its Chinese plant this month, the two companies said on Friday. Combined, they rank as the worlds fifth-biggest carmaker.
“The production cuts are to flexibly adjust the plants’ production to market demand,” the companies said. This is the first output reduction for Hyundai since the 2008 global financial crisis and comes as the company battles tougher competition from Japanese competitors amid a stronger won and a weaker yen, while struggling to meet strong global demand for sport utility vehicles.
The company said last week that domestic sales slid 8.2% in May from a year earlier, a second straight monthly contraction, while overseas shipments dropped 6.1%. Overall, deliveries slid by an annualized 6.4% in May, while Kias sales declined 5%, exacerbating investor concerns over a continuously weakening yen, which gives Japanese rivals a pricing advantage.
And the situation is not expected to improve in a timely manner as the automaker prepares to boost production of the revamped Tucson SUV, but the output increase would not come before September. The company will also introduce its new Creta SUV in India in the second half of this year.
However, missing on the initial boom in SUV demand, it will be hard for Hyundai to cushion its falling sales and regain lost market share. None of the carmakers vehicles managed to rank among the 10 best-selling SUVs in China in the first three months of the year, with analysts projecting a combined 10% decline in sales for Hyundai and Kia in China in the current quarter.
In the US, where Hyundai offers only two SUVs and no pick-up trucks, Hyundai sold 10% less vehicles in May from a year earlier, the sharpest drop in almost five years. It lost market share to Toyota whose model range includes eight sport utility vehicles and two pick-up trucks.
The Korean auto manufacturer’s net profit declined for a fifth consecutive quarter in the first three months of the year, as it also suffered under the impact of a weaker euro and currencies in emerging markets such as Brazil and Russia.
Even at home turf, sales were negatively impacted by growing interest for imported cars following free-trade agreements with the United States and the European Union. BMW, Mercedes-Benz and Toyota achieved a collective 33% market share increase in South Korea in the first quarter, according to data from the local vehicle importers association, while Hyundai’s domestic market share plunged to 32% in January, the lowest in at least 15 years.
Hyundai and Kia said in a joint statement on Tuesday that they are “making efforts to cut costs”, with the savings depending on the Q3 and Q4 sales performance. The cuts will not include Hyundai Motor Groups R&D, nor its sponsorship of FIFA, according to a company spokesman.
Analysts said it will be difficult for the two carmakers to cut wages for their unionized staff in South Korea and reckoned savings will first target costs related to marketing and advertisement.
Hyundai Motor Co settled 1.45% lower at KRW 136 000 per share on Friday in Seoul, while Kia Motors Corp slid 0.76% to KRW 45 850.
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