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Discounts drive Hyundai profit to 5-year low

Hyundai Motor fell far short of estimates with its lowest quarterly profit in about five years, hurt by the cost of steep discounts on small sedans, and cautioned it expected more uncertainty ahead as competition and protectionism increase.

At its peak in 2011, more than one car in every 20 sold in the United States was a Hyundai, driven by sales of Elantra and Sonata sedans. But the South Korean firm’s mainstay sedans have lost their appeal to offerings such as Honda’s Civic in the United States and Renault’s SM6 in South Korea.

Exacerbating the situation is the growing popularity of gas-guzzling sport utility vehicles (SUVs) in a world of low oil prices. And the outlook for sales is now set to be further muddied by worries U.S. President Donald Trump could impose high tariffs on vehicles shipped in to what is Hyundai Motor’s No.2 market.

“We will continuously monitor the policy changes of the Trump government, and minimise its impact on our sales and profitability,” Zayong Koo, Hyundai vice president in charge of investor relations, said at a earnings call on Wednesday, after reporting a twelfth straight drop in quarterly profits.

Hyundai Motor and its affiliate Kia Motors Corp, together the world’s fifth-largest automaker, have one of the lowest ratios of cars built in the United States to cars sold.

On the call, Hyundai Motor said it expects a “challenging business environment” in the U.S. market this year.

Earlier in the day, the company reported a fourth-quarter net profit of 1 trillion won ($858.07 million), down 39 percent from a year ago and the lowest since the first quarter of 2012. Analysts polled by Thomson Reuters I/B/E/S had on an average expected a 1.5 trillion won profit.

Shares in the company ended down 3.1 percent after the results, their biggest daily drop since Nov. 10, 2016.

“It is quite disappointing in terms of their outlook,” said Kim Jin-woo, analyst at Korea Investment & Securities. “They did not say what investors wanted to hear.”

U.S., South Korea plans

Hyundai Motors has previously said that it was planning to launch new models, such as a small SUV and a redesigned Sonata, to buoy revenue this year from its lucrative home market, where sales dropped 18 percent in the October-December period.

In the United States, the group, including Hyundai, Kia and parts affiliates, plans to lift investment by 50 percent to $3.1 billion over five years, amid worries about protectionism.

The group, which is considering adding a U.S. factory to build SUVs and premium Genesis cars, is also looking to boost supply of Santa Fe SUVs and Tucson SUVs to the U.S. market in a bid to capitalise on rising SUV demand.

Hyundai Motor on Wednesday said it planned to use 30-50 percent of its free cash flow for shareholder returns in the future, without giving further details.

Last year, it paid more than 50 percent of its free cash flow to shareholders, a Hyundai spokesperson said.

Hyundai Motor’s fourth-quarter sales fell 0.9 percent to 24.5 trillion won, while operating profit dropped 33 percent from year-ago levels to 1 trillion won.

Higher U.S. incentive spending – which Autodata Corp said jumped 30 percent to $2,582 per vehicle in December from a year ago for Hyundai, above an average industry increase of 23 percent – dragged on the company’s results for the quarter. (Reuters)

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