Hyundai Group revises policy of rapid growth and prioritizes quality

Group overstated fuel-consumption ratings and faced huge recalls in U.S.

2013/08/23

Summary

Hyundai Group whole sale The Hyundai Group (Hyundai Motor and Kia Motors) achieved remarkable growth over these past few years. However, in 2012, it suffered from a string of setbacks for lower production capacity as a result of pre-set strikes in Korea and labor agreements that limited per-employee work hours. Other negative factors include  the high valuation of the won, overstated fuel-consumption ratings issue and large-scale product recalls in the U.S.

 Having achieved rapid and remarkable growth these past few years, the Company's global  plants were busy building products, running at high operating levels. For example, Hyundai Motor's global plants were operating at 107.4% in 2011 and 108.4% in 2012. However, this year, in line with reduced working hours at its plants in Korea, there has been a supply capacity shortage in the U.S. and other regions where market growth is expanding. In the U.S., the Group's market share between January and July 2013 dropped to 8.2% from 9.0% of the same period in the previous year.

 On the other hand, the Hyundai Group is very cautious about enhancing the capabilities of its production facilities. The Group's production levels significantly and rapidly increased for the past several years. If the Group continues on its current roadmap for high-volume production levels, its parts suppliers' might not be able to keep up with demand and problems with quality might surface. As a result, the Group's plan for increases in production capacity from the second half of 2013 will be limited as follows; Raising the production capacity at its plant in Turkey from 100,000 units to 200,000 in 2013; and launching commercial production at Kia's third production plant in China in the second half of 2014. (Also, it has been reported that Hyundai will construct its fourth plant in China.)

Even if Hyundai Group ends up losing market share temporarily, its main priorities will be first to enhance quality, ensure customer satisfaction, and raise earnings at the Group and its dealers. It will raise its administrative/management efficiencies and prepare for its future growth.

 As for the Hyundai Group's business results, Hyundai Motor's profit margin is around 10% and Kia's is around 8%, indicating a rather high level of profitability, even though increase of sales are falling (Kia's were down 0.6% for the first half of 2013).

 At the end of this report, we've provided production forecast by country for the Hyundai Group compiled by LMC Automotive. Although the Hyundai Group's growth rate may taper off, it is still estimated that its production volume will reach 8.35 million units in 2016.

 Also, we plan to write a separate report about the Group's operations in China, the country where the greatest amount of growth is expected to occur.

Related report: Hyundai Group plans to sell 7 million vehicles in 2012, up by 400K over 2011 (posted in April 2012)