Effect of Normal Wages
Kia Motors posted operating loss for the first time in 10 years in the third quarter of this year due to its defeat in a normal wage lawsuit at the end of August. This is because the automaker allocated about 1 trillion won (US$900 million) including salaries to be paid as reserves against losses when the defeat is finalized in the court.
Overcoming repercussions from China’s reprisal for South Korea’s THAAD deployment, Kia Motors made a recovery in sales in the Chinese market, while putting up a good fight in Europe and emerging markets. But external factors overshadowed it. It is hard to make a positive forecast about the fourth quarter as instability factors such as a long labor strike that may occur during a collective bargain agreement negotiation processes still exist inside the company although the automaker says that it will try to improve earnings in the fourth quarter due to differentiated strategies by overseas markets.
Kia Motors announced that the company chalked up an operating loss of 427 billion won (US$384 million) in the third quarter in its third-quarter earnings conference call at its headquarters in Seoul on October 27. The automaker suffered a deficit in 10 years since October 2007 (an operating loss of 116.5 billion won or US$104 million). Its revenue arrived at 14.107 trillion won (US$, up 11.1% from a year earlier, but net loss rose 143.9% to 291.8 billion won (US$262 million).
"Although sales increased in the third quarter, operating profit turned to a deficit in 10 years due to cost of 1 trillion won due to the normal wage ruling," a Kia Motors official said. “As there are many positive factors, such as the disappearance of financial uncertainties and the global launch of new models such as the Stinger and the Stonic, we will do our best to enhance profitability for the rest of the year."
Excluding normal wage-related costs, however, third quarter operating profit will sink to the 10% level. This means that Kia’s operating profit is recovering as it declined 39.6% and 47.6% year on year in the first and second quarters, respectively.