Forex Punch
Kia Motors’ performance in the first quarter of this year has worsened due to the rapid drop of the euro and the ruble in exchange rates, compared to a year earlier.
In the Investor Relations (IR) event held at the company's headquarters in Yangjae-dong, Seoul, on April 24, Kia Motors announced that it recorded 11.1777 trillion won (US$10.36 billion) in sales and 511.6 billion won (US$474.05 million) in operating profits in the first quarter. The sales decreased 6.3 percent from a year ago, while the operating profits rapidly dropped as much as 30.5 percent. As the euro and the ruble plunged, the company had difficulties turning a profit. This is partially due to the fact that the company raised the incentives of dealers in order to protect the market.
By ex factory, Kia Motors sold 751,080 cars in the first quarter, a 2.7 percent decrease from the previous year. Even though the sales grew 6 percent in the domestic market, the exports decreased 8.8 percent. Accordingly, the shipments of domestic factories declined 5.1 percent overall. The shipments of overseas factories increased 0.3 percent from 339,000 units to 341,000 units. As the shipments of only Chinese factories grew 3 percent and the shipments of the U.S. and European markets, it became an obstacle to sales growth.
Another reason for stagnant profits is the expansion of incentives in a bid to reduce its inventory in the U.S. market. For Kia Motors’ inventory in the U.S. market, the waiting period per unit reached 4.1 months from the delivery to the sales. However, the figure slightly decreased to 3.8 months in the first quarter, as the company increased the incentives of its dealers. However, the global inventory is at a reasonable level with 2.7 months, said the company.
In order to avoid a blow from the exchange rates, Kia Motors currently reduces the output in local factories or increases selling prices. During the first quarter, the company raised the prices of the major auto models in Russia by 8 percent and reduced the production in Slovak factories by 37 percent. Kia Motors is planning to flexibly adjust the output and selling prices in local factories after the company watches the exchange rates in specific regions in the second quarter.