Hyundai-Kia Group: Declining profitability since 2013
New plants in China and Mexico to increase supply and mitigate won's appreciation
Hyundai Motor Company Group's shipment volume increased sharply by 1.07 million units year-on-year (y/y) in 2010, and by 855,000 units y/y in 2011. Since then, Hyundai shelved new plant construction plans in order to address quality control and other impending issues, focusing on internal improvement efforts.
Hyundai and Kia registered an increase in operating profit and maintained a high performance level that overwhelmed other global OEMs in 2012 with 10.0% and 7.5% operating profit margin, respectively.
However, the group faced a number of issues emerging from won's appreciation, tensions in labor-management disputes, overstatement of fuel efficiencies of their vehicles, and declining market shares in domestic sales resulting from rapid in-flow of imports. They were respectively a blow to the favorable business environment that has contributed to the group's rapid growth and high profitability in recent years. Won's appreciation, in particular, was the biggest blow that is now causing a sluggish growth in sales revenue and profits despite the increase in wholesale volume.
Both Hyundai and Kia ended the year 2013 with the first decline of operating profit since they shifted to the K-IFRS reporting system in 2010. This trend continued through January-June 2014. Between the two companies, the decline of profit margin is larger for Kia that has a higher export ratio from Korea (Hyundai and Kia are still enjoying high operating profit margin in January-June 2014 at 9.1% and 6.3%, respectively).
Hyundai-Kia Group's global production capacity at the end of 2014 will be approximately 8 million vehicles. Hyundai's new plant will start operations in Chongqing, China, starting in 2016 with annual capacity of 300,000 vehicles. In August 2014, Kia announced plans to build a new plant in Mexico with an annual capacity of 300,000 vehicles.
Hyundai-Kia Group aims to strengthen their supply capacities and mitigate the impact of won's appreciation by supplying from new plants in China and Mexico. However, many of the adverse situations are still casting shadows over them.
Related report: Hyundai Group revises policy of rapid growth and prioritizes quality (Aug. 2013)