Hyundai and Kia implementing go-slow strategy to focus on profitability

Article by Anita Panait, on January 5, 2013

Hyundai Motor Co and affiliate Kia Motors Corp. will be implementing a “go-slow” strategy this year, aiming only to post a 4-percent increase in global sales to a combined 7.41 million vehicles. The chairman of the South Korean carmakers, Chung Mong-koo, decided to slow down their capacity buildup to focus on improving quality and brands as well as to safeguard profitability.

This year will be a time for the carmakers to post modest growth following years of extensive progress. The carmaker’s industry-leading margins could be jeopardized by the strengthening South Korean won, which effectively cuts repatriated earnings and pricing power. In contrast, the erstwhile robust Japanese yen is softening, which could turn the tide in favor of Japan-based carmakers like Toyota Motor Corp and Honda Motor Co Ltd.

The won rose 7.6% against the dollar in 2012. As a reflection, Hyundai shares hiked 2.6% in 2012 while Kia shares fell 15.3% – both failing to perform better than the 9.4% gain of the wider market. According to data from Thomson Reuters, Hyundai and Kia were the worst performing stocks among the world's top five carmakers in 2012. The South Korean carmakers posted an 8-percent hike in vehicle sales in 2012 to a combined 7.12 million vehicles, surpassing their initial target of 7 million vehicles.

The South Korean carmakers managed to increase their sales in China, while their Japanese rivals suffered following a product boycott caused by a territorial row between China and Japan. In the U.S. and Canada, meanwhile, the carmakers’ sales have yet to be greatly affected by their November 2, 2012 admission that they had overstated the fuel economy of over 1 million cars.

Topics: hyundai, kia, profit

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