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Hyundai-Kia Motors Struggle with Strong Won
Exchange Disaster
Hyundai-Kia Motors Struggle with Strong Won
  • By Jung Suk-yee
  • May 18, 2015, 03:15
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Hyundai Motor and its affiliate Kia Motors are reeling under the huge blow of the exchange rate changes. Amid profits directly hit by the relatively strong won compared with the euro and the yen, the companies are now also in trouble to maintain their sales due to the currency depreciation of major emerging countries, including Russia and Brazil.

According to automobile industry sources on May 17, Hyundai and Kia Motors are having a tough time. Hyundai Motor posted 1.588 trillion won (US$1.46 billion) in operating profits in the first quarter this year. The figure is an 18.5 percent, or 350.5 billion won (US$322.57 million), decline from 1.8575 trillion won (US$1.71 billion) of operating profits a year earlier. During the same period, Kia Motors’ operating profits in the first quarter also fell as much as 30.5 percent, or 224 billion won (US$206.15 million), from 735.6 billion won (US$676.97 million) to 511.6 billion won (US$470.83 million).

On the other hand, German and Japanese automakers showed good performance.

The Daimler AG Group, the parent company of Mercedes-Benz, sold a total of 641,600 vehicles in the first quarter. It is a 20 percent increase from the sales of 459,700 units last year. With the sales growth, its operating profits increased 41 percent to €2.9 billion (US$3.29 billion or 3.58 trillion won). German luxury carmaker BMW recorded €2.52 billion (US$2.86 billion or 3.11 trillion won) in operating profits, a 21 percent increase from a year ago. It also ranked first in the operating profitability ratio, with 12.1 percent among major global auto brands.

Thanks to the weak yen, Japanese automakers also made good marks in the market. During the 2014 fiscal year from April 2014 to March 2015, Toyota posted 27.2345 trillion yen (US$227.87 billion or 24.76 trillion won) in sales and 2.7505 trillion yen (US$23.01 billion or 25 trillion won) in operating profits, respectively. The company saw the growth of 6 percent in sales and 20 percent in operating profits year-on-year. Both figures are the highest since its founding.

The exchange rate was the major factor that made the difference in the results between domestic and overseas automakers. The won-dollar exchange rate slightly increased from 1069 won per dollar in the first quarter last year to 1100.3 won per dollar in the first quarter this year. However, the exchange rates of the euro, the Russian ruble, and the Brazilian real plunged to a critical level. The average won-euro exchange rate in the first quarter dropped 15.4 percent in the year to 1236.3 won, while the value of the ruble against the won plummeted as much as 40.9 percent during the same period. The value of the real against the won also decreased 16 percent.

In a bid to recover the strong won, Hyundai and Kia Motors are pursuing differentiated strategies such as increasing dealer incentives in its main markets and increasing the market share in emerging countries. However, it is inevitable for them to face difficulties. In particular, the companies will be in a devastating situation in emerging countries, including Russia and Brazil.

Considering the fact that global auto brands reduced their sales, it is remarkable that Hyundai and Kia Motors expanded. However, neither companies have seen any results, as the purchasing power in the local market decreased. Their combined market shares increased 5.9 percentage points to 19.8 percent year-on-year in Russia, and reached an all-time high of 8.7 percent in Brazil after entering the market in 1992. However, their sales dropped 12.1 percent and 8.3 percent in the markets from a year ago, respectively.