Hyundai Quarterly Profit Dips 10%

Anthony Fontanelle
May 3, 2007

The Hyundai Motor Company said that net profit declined for a fifth straight quarter as sales plummeted because of labor strikes and intense competition in China. Hyundai, a leading Korean automaker, said last Wednesday that net profit in the first quarter that ended March 31 had fallen by 10.2 percent to 307.4 billion won or $329.22 million, down from 342.39 billion won a year earlier, the company said in a statement.

Last year's first-quarter figure was revised up from an initial 318.83 billion won due to changes in South Korean accounting regulations, said Hyundai spokesman Jake Jang. Quarterly sales declined 2.6 percent to 6.684 trillion won or $7.16 billion. The first quarter results for the world's sixth-largest automaker was worse than anticipated. The average estimate of eleven analysts surveyed by the Dow Jones Newswires forecast that Hyundai would report a net profit of 392.70 billion won or $421 million.

Labor troubles are a constant headache for Hyundai. And the automaker saw the need to grab power and efficiency similar to EBC pads in order to come to a labor dispute halt. To make the company more powerful, the Korean automaker partnered with Kia Motors Corporation. The affiliation is aimed at significantly expanding the overseas production for Hyundai to become the world's fifth largest automaker by the year 2010.

The automaker’s militant labor union has gone on strike every year but one since its inception in 1987. In 2006, Hyundai faced the worst labor dilemma in its existence, when four walkouts cost it 1.64 trillion won or $1.76 billion in lost output.

January's series of partial strikes, in which workers laid down tools over 13 days amid a bonus dispute, cost the carmaker 266.8 billion won or some $286 million that is equivalent to 18,513 vehicles, in production losses, Hyundai said. Jang said that intense competition in the global auto market also cut into Hyundai's sales. "The typical example is the China market," Jang added. "There's literally a price war among the global automakers. We are not following that trend of severe price reductions."

Hyundai said it sold 79,000 of the vehicles it manufactured in China during the first quarter, down 4.1 percent from the year before. Jang added that Hyundai sold another 4,833 exported vehicles in that market, up 11 percent. A 3.6 percent decline in the U.S. dollar against the South Korean won also hurt Hyundai's earnings results in the quarter, the company added.

Hyundai’s exports accounted for almost 60 percent of the company's sales in 2006. A stronger won makes the Korean automaker’s product lines more expensive overseas and decreases the value of profits earned abroad when converted into the currency.

In a possible sign of better things to come in the second quarter, Hyundai said Wednesday that sales in April rose by ten percent from the year before to 225,178 vehicles that is driven by the strong demand coming from South Korea. Unit sales in the first four months of this year totaled 837,402 vehicles and that number is up by 1.5 percent from the 825,015 recorded during the corresponding period last year, the automaker noted.

Shares in Hyundai, which reported earnings during afternoon trading, increased by 3.9 percent to close at 61,600 won or $66 after increasing as much as 4.5 percent before the results were given.

Source:  Amazines.com