Hyundai's sales in China plummet amid missile crisis

A Hyundai plant in Beijing, China. The South Korean carmaker has seen its sales collapse in China.
A Hyundai plant in Beijing, China. The South Korean carmaker has seen its sales collapse in China.PHOTO: REUTERS

Chinese buyers boycott S. Korean firm after Seoul govt adds more launchers to Thaad

SEOUL •At a Hyundai car factory in northern China, employees are not sure from one day to the next whether their workplace will be open. Chinese buyers are shunning the automaker because of political tensions over an anti-missile defence system, with sales plunging 64 per cent in the aftermath.

The plant in Cangzhou closed many times in the past six months, said a worker who did not want to be identified. Assembly lines shut for a week in August, then resumed operations for a day before closing again, he said. Another stoppage occurred this month.

These start-and-stop operations are the new normal for South Korea's Hyundai Motor in the world's largest auto market, Bloomberg Intelligence analyst Steve Man said.

Hyundai already curtailed production there by two-thirds, and business may get even worse after South Korea added more launchers to the terminal high altitude area defence (Thaad) system in response to North Korea testing more nuclear weapons despite global condemnation and sanctions.

Dealers in China say they are losing thousands of yuan on every Hyundai sale because of discounts, and some may drop the brand.

"It doesn't seem like there's any light at the end of the tunnel," Mr Man said.

Hyundai's Seoul-listed shares have dropped 6.9 per cent this year, compared with a 17 per cent rise in the benchmark Kospi Index.

The state-controlled Chinese media is piling on, too. The Global Times, a tabloid affiliated with the Communist Party mouthpiece People's Daily, said local partner BAIC Motor was fed up with Hyundai's "greed and arrogance" in resisting proposals to cut costs by using more Chinese suppliers. BAIC declined to comment.

Hyundai also is lowering its profile in China. It has ended its sponsorship of the Hyundai China Ladies Open, a golf tournament it had been involved with since 2010, a spokesman in Seoul said.

The China collapse is just one of multiple headaches for South Korea's biggest automaker. Hyundai's vehicle sales worldwide fell 6 per cent in August, the sixth consecutive month of decline.

Net income in the second quarter fell 51 per cent to 817 billion won (S$980 million), and the company said it expected a tough second half of the year.

S&P Global Ratings last Friday downgraded its outlooks for Hyundai and affiliate Kia Motors to negative from stable. Hyundai and Kia "will continue to face profitability pressures over the next 12 to 24 months because of intense competition and difficulties in its Chinese operations", the agency said.

Hyundai and Kia are expected to sell a combined 1 million vehicles in China this year - a plunge of at least 40 per cent from a year earlier, the agency said.

Beijing Hyundai, the joint venture with Beijing-based BAIC, lost 210 billion won in the first six months this year, according to regulatory filings. In the same period a year earlier, the joint venture earned 700 billion won.

Beijing Hyundai sold only 361,000 cars in the first half of this year, a 29 per cent fall from a year earlier - before the Thaad missile system was installed in South Korea. Revenue fell 52 per cent to 4.57 trillion won. "Thaad is the trigger leading to the current situation," said Mr Wang Cun, who runs the committee overseeing imported cars at the China Automobile Dealers Association, a trade group.

Hyundai is revamping its China management team, naming a new chief for its operations and hiring a new head of design. The company also remains committed to its partnership with BAIC. "The cooperative relationships between the two companies will continue, and both plan to continue various talks to strengthen competitiveness in the Chinese market," Hyundai Motor said in a statement.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 13, 2017, with the headline 'Hyundai's sales in China plummet amid missile crisis'. Print Edition | Subscribe