Its largest & second largest markets. In how much trouble is it?
Hyundai Motor Group is getting brutally crushed in its largest market, China, where it is, or rather was, the third largest automaker behind GM and Volkswagen. And it is getting mauled in its second largest market, the US, where it is the seventh largest automaker behind the Big Three US automakers and the Big Three Japanese automakers.
Hyundai Motor Group came about in 1998 after the Asian Financial Crisis, when it obtained a controlling stake in Kia after Kia went bankrupt. The Korean conglomerate, in addition to automakers Hyundai and Kia, has other affiliates, including Hyundai Steel, logistics company Hyundai Glovis, and auto components supplier Hyundai Mobis, all of which are listed separately on the Korean stock exchange.
These entities support and supply the automakers Hyundai and Kia and are dependent on what the automakers sell. And both automakers are in the same boat in China, where things were already hard before the 2017 collapse began.
In 2016, both brands combined sold 1.79 million vehicles in China. For this year, the company set a lofty target of 1.95 million vehicles, a 9% increase. That would have been a push under the best conditions. In 2015, their sales fell to 1.65 million vehicles, from 1.77 million in 2014, according to Carsalesbase. In other words, 2016 sales were up only 1.4% from 2014.
So that targeted 9% increase in China in 2017 might have been illusory to begin with. Overall sales in China were up only 3% in the first half of 2017. All global automakers are battling it out in China, by far the largest market in the world, and they’re battling a slew of domestic automakers that are rapidly learning how to make cars — and sell them for less.
Then came 2017. The problem shifted into high gear in March. Sales in China for Hyundai and Kia combined plunged by 62% in June year-over-year, to only 54,000 vehicles. For the four months of March, April, May, and June combined, sales plunged 61% compared to the same period last year, despite huge discounts:
Why did this fiasco happen?
Hyundai’s explanation – with a lot of truth to it – is that this is out of its control, that this is due to a diplomatic dispute between China and Korea over the installation of the US THAAD anti-missile system in South Korea that has riled the Chinese government, which then artfully engineered a consumer boycott against Korean brands though they’re manufactured in China.
China is good at this. Japanese automakers went through it, as did Apple, and other companies. It’s part of China’s communication tool set.
But even before the diplomatic imbroglio erupted, Hyundai-Kia sales in China were under pressure, for a number of reasons.
“GM, Nissan, and Toyota launched inexpensive models in China to compete effectively with local brands. But Hyundai had no such strategy,” Kim Pyeong-mo, an analyst at Dongbu Securities in Seoul, told the Nikkei.
China is one of the most unforgiving markets in the world, and strategic errors get expensive in a hurry.
“The sharp drop in sales of Korean auto brands is not simply due to the THAAD effect. We believe there is a wide range of factors, such as changes in the auto market structure in China, the rise of local automakers, and the increased competitiveness of Japanese brands,” Cho Cheol, a researcher at the Korea Institute for Industrial Economics and Trade, told the Nikkei.
The Korean brands hadn’t kept up with changes in the Chinese market. As the quality of the domestic brands has improves, they squeeze Korean brands from the bottom up. At the same time, US, Japanese, and European automakers are squeezing them from the top down.
But the conglomerate’s problems are not limited to China. In the US, in June, Hyundai vehicle sales plunged 19% year-over-year, and Kia sales 10%, according to Autodata. For the first six months, sales of both brands combined dropped 9% year-over-year. Hyundai is getting crushed in car sales, down 24% year-over-year in June, and Kia is getting crushed in truck sales (small SUVs), down 23%, even though small SUVs are hot in the US.
In the US, new car sales are plunging for three main reasons:
- Rental car companies are overfleeted and are curtailing their purchases;
- Recent-model-year used cars are getting cheaper and are plentiful, competing with new vehicles, but cost a lot less;
- And American car buyers continue to switch to trucks (pickups, SUVs, crossovers, vans).
All major automakers are getting hit by the first two factors. But the Korean automakers don’t seem to have a compelling lineup in the trucks segment and cannot benefit from the switch to trucks. The models they do have are getting long in the tooth.
Then there’s another problem in the US: Hyundai’s aura of good fuel economy took a hit, along with its reputation, when it settled allegations for $41 million in fines that it had been misleading US car buyers with exaggerated fuel-economy claims.
“Since the fuel economy issue had popped up, sales of Hyundai Motor in the US market have been stagnant or declined,” Lee Sang-hyun, an analyst at IBK Securities, told the Nikkei. “Hyundai could not claim anymore that it produces the best fuel-efficient models in its class.”
Even globally, Hyundai-Kia sales fell by nearly 9% in the first half of 2017.
The diplomatic row in China will eventually blow over, as it did with the Japanese automakers. But it will take time and will be very costly for Hyundai-Kia and the conglomerate’s affiliates supplying the two. It will give Chinese brands more time to move into the space and get established. So the damage may not be temporary. And the other problems Hyundai and Kia have, such as in the US, are even more intractable, where the shift from cars to trucks has thrown the entire market into turmoil.
Carmageddon in the US: GM is now holding discussions with the UAW over cutting out six models. Entire plants at risk. Read… As Sales Plunge, GM Might Cancel Six Car Models
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Cadenza, anyone? Sonata? 30% off
Crestmont Hyundai
New 2017 Hyundai Elantra SE Sedan
MSRP $19,290
Sale $10,246
MMR (manheim market report) MMR: $10,850, 24k mi.
So they are selling new at wholesale used prices.
I’d stay away from Hyundai’s…their suspension design is junk.
South Korean industry could rebound, by simply telling the US to withdraw.
60% of Korean voters want the US to withdraw, 20% want the US to remain in Korea.
I think the US should withdraw and let the Koreans work it out themselves – let them kill each other and then when the people in South coming calling for help, tell them to stick it.
I’m sure little ole Kim would be salivating at the prospect of that happening and China long with it.
You want Japan to go nuclear? That would be the first thing the Japanese would do upon the US leaving SK.
By the way, comments on the India/China/Bhutan border incident and the just announced threat to Vietnam from China about them drilling in their own EEC zone?
Folks, China is on the move……………..bad news.
can’t agree more , China is in the ” driver’s seat” . While the US focuses on RUSSIA the real looming issues relate more to the dragon not the bear . China can shut us down in a heartbeat – they have the means to our production . Also the International Monetary Fund added the yuan to its elite basket of reserve currencies back in early 2016. say goodbye to the dollar hegemony.
“Also the International Monetary Fund added the yuan to its elite basket of reserve currencies back in early 2016. say goodbye to the dollar hegemony.”
Not even close.
There is only two true international currencies: the USD and the EUR, which together account for about 70% of trade (and the USD is the bigger of the two). That’s not going to change for a long, long time– and China is going to face some major problems far before we see the USD losing its grip as THE reserve currency.
The Yuan is used in a negligible percentage of international transactions. Somewhere around 2-3% of international payments are in Yuan. Somewhere around 70% of THOSE payments are within Hong Kong. So… less than 1% of actual international transactions are done in Yuan.
Add to that, a big chunk of those international transactions are pure currency speculation plays, and not actual trade, and the Yuan is less important to international trade than the Norwegian Kroner.
IF the Yuan were to ever truly become a reserve currency, China would have to liberalize and loosen their grip on their own economy. They’d have to open their bond markets to foreign investors, meaning Chinese assets would now be priced subject to the whim of global investors– how likely do you think Chinese leadership is to do that? And China would have to remove the peg to the USD and allow it to free float. How likely do you think Chinese leadership is to do that?
The Yuan might become a true reserve currency in the next 20 or 30 years, but dollar hegemony isn’t going anywhere any time soon.
Nobodoy needs you to save them, nobody needs you to play the role of global police. You are not exceptional, just a bunch of etnocentric warmongers. Korea would in its way to reunification (peacefully) but for the US.
You are just protecting your own interests, or more accurately the interests of your corporate class.
Exactly. Mingle in other people’s affairs for its own interest under the guise of “helping”.
Korea would be doing no such thing. Don’t lie to yourself. If we weren’t there China would be, or Japan. Again.
That’s the fate of small countries who cannot control their destinies. Its why power matters.
We don’t need he Americans help, either.
Europe, 1938
You needn’t look back far in your history book to see the importance of the US intervention in the world.
“I think the US should withdraw and let the Koreans work it out themselves – let them kill each other and then when the people in South coming calling for help, tell them to stick it.”
If only people go travel a bit, not just get info from local mainstream media and think they understand the world.
The Koreans are less likely to fight and kill each other without the US stirring things up over there. It’s only in the US’ own interests that it maintains its presence over there — when you have control of some peons in someone else’s backyard, you have leverage. For this fact, the US has tremendous tactical advantage over China, and Russia.
If don’t like travelling, then at least go read or listen to some Noam Chomsky.
If only the US (and UN, Brit, Canada etc. ) had minded their own business when the North invaded with Soviet supplied T-34 s, Korea would be united today under the Glorious Grand Son, Kim Yong-Un
Then Korean children in the South could also eat grass plus there would be no Korean car exports to compete with us.
Read and travel?
I doubt you have ever been to Korea or read its recent history.
I really get a kick out of people that have never been in country or the military telling others that good ole kumbaya will work out.
Fact of the matter is that the NK is a brutal, murderous, authoritarian regime intent on unifying the Peninsula any way it can.
For all those that believe that a peaceful re-unification would occur: as soon as the US pulls out of SK, please move there and put me in your will.
I’ll gladly take your money as you won’t need it or be around to use it.
Noam Chomsky? That guy has reaped the benefit of capitalism, yet trashes it.
The US pulls out of Korea and the North invades. Last time I checked, the North was the aggresor. Is the US constantly threatening North Korea?
@nick Kelly
“If only the US (and UN, Brit, Canada etc. ) had minded their own business when the North invaded with Soviet supplied T-34 s, Korea would be united today under the Glorious Grand Son, Kim Yong-Un”
But that was 60 years ago, when Russia/China were utterly intent on spreading communism around the globe, starting locally. It’s just not true today.
The US should withdraw out of every country and clean up their own mess at home! I guess that would make sense so they won’t withdraw. Its more profitable to create mayhem and confusion everywhere.
The EPA problem wont be an issue going forward once we finishing gutting it……
Its a shame they are having trouble in China. I have really enjoyed their recent crop of cars. There 2016-2017 redesigns in particular are really starting to catch up to other top sedan and crossover makers with regards to their overall quality and drive train.
You get a lot for your money, after loads of incentives, relative to the more popular Mazda’s and Honda’s. And a pretty good warranty.
My local mechanic told me that quality at Honda has been slipping, while Kia and Hyundai have been improving their design and build quality to the point that they are better deals than their Japanese counterparts. The warranties are better, too.
Yes, 2017 doesn’t look good for Kia, but looking at a longer time frame it’s not so bad. In 2000 they sold 74,000 cars in the US. In 2010, when the KORUS was renegotiated they sold 170,00 cars. By 2016 they sold 328,000 cars in the US. (Pretty good deal for Korea I guess). Maybe they were due for a dip, much like our equity markets.
Perhaps you don’t remember their lack of reliability during their initial import into the US. The warranty was necessary to sell cars. Quite hard to beat a Honda or Toyota.
The Pony was what 30+ years ago? If memories are going to be that long Caddy got probs too.
Kia just won a US award for least defects ( JD Power?)
I think Forbes has a point about trying to be a 45 K luxury brand called Kia.
It doesn’t even sound expensive.
I think if they have to do this lux sedan bit they should build under a new division name like Lexus.
Better is to move into lux SUV’s with Santa Fe as base. It will prob have to be larger for US.
Caddy? Who buys those any more? Overpriced garage-queens.
I kinda know a guy who buys a new Caddy every few years and we all kind of snicker behind his back.
You drive a Prius, Camry, or Corolla, right? (Snicker)
Alex,
Was the buyer young or old? If they are old they have more $ than they can spend in their lifetime. They buy cash and aren’t very price sensitive. I know a half dozen of those.
If they are young they are probabaly leasing(75% of new BMW “purchases” are leases). They are vain. They are common.
Drango – I drive a bicycle.
TJ not the real tj – It’s a real old guy and rumors are that he was an engineer with GM for a career and gets the Caddys practically for free. We still snicker though.
‘Who buys these cars?’
Popular Mechanics, Autumn 1987
To the extent that Hyundai’s problem is THAAD related to an American it only shows how useless China has been with North Korea. That China sees no problem in putting real economic pressure on South Korea over some ABM radar systems made necessary by North Korea’s missile program but won’t apply the same pressure to Kim Jung Un’s regime ought to tell us where they really stand on the issue.
I don’t for a minute believe that China’s concern over destabilizing North Korea is about an influx of refugees. North Korea’s entire population is less than 2% of China’s and given the shortage of female Chinese women any North Korean women refugees would hardly pose a problem.
China doesn’t like anyone who isn’t Han Chinese. So if you’re Korean, North or South, Uighur, anything, you’re on the outs. Same goes for political ideology – anything but Communist Party/Confucian and you’re on the outs.
North Korea is rich in untapped natural resources. China might make them a brotherly “protectorate” one of these days, like they did to brotherly Tibet.
If China “liberated” them it would be a big improvement over what 99.9% of the people live under now.
Of course the US would pitch a fit – unless we got out of S. Korea first. We hold huge military exercises there every year, and I think my best day there was when it froze cold enough that people could walk *on* the mud instead of in it, and I had KP all day, which sounds bad but the sergeant in charge was the nicest, happiest, guy ever and a joy to be around. I wasn’t even broken out of my good mood when I walked back to my tent and the top 2/3rds had burned off. We slept under the stars that night …
All this in preparation for a large scale land war with China, just like we prepare for a large scale land war in Europe against the USSR, wait, aren’t we friends with Russia now?
Large scale land wars are extremely stupid. I really wonder if wars will be through trade, diplomacy, embargoes or “more favored” trade status, things like that. Or if somehow we’ll do something extremely stupid again.
North Korea doesn’t pose a threat to anyone and China knows that. However the United States certainly does.
Well said.
Kent
By definition, dictators with nuclear bombs (let alone ICBMs) pose a threat to others.
So he’s right. The U.S. is a threat to others.
At a minimum, the average north korean would disagree.
And if your view is the correct one, why not live there instead of (ostensibly) in or near the US?
Maybe you folks should stick to coloring books – suit your capacities better.
In Forbes 15 cars not to buy, Kia gets whacked for, in Forbes opinion trying to compete with BMW, Lexus etc. with 45K cars.
Sure they may be great but 45K for a Kia anything?
As a recall Honda and Toyota went more slowly up value chain.
Maybe Kia should follow their lead and sell luxury model under different division name.
I thought Hyundai had a hit with Santa Fe?
I don’t get it. Watching CNBC this morning here in NZ everything is roses. CNBC says GM just had their best vehicle sales.
Could some one explain why CNBC etc are so diametrically opposed to the views of WS commentators. Some one has to be wrong
Maybe GM’s sales in NZ were good. But globally, GM sales fell, and its net income fell too.
An attack on North Korea may eliminate the Hyundai chaebol completely from the competition….Along with Samsung, LG, SK and others…
I saw a cute little Ford Fiesta today while out riding my bike … orange with a double black go-fast stripe, looked practical but with a paint job to please any man-child, should be easy on gas … how are those doing?
I like the Fiesta too. Unlike GM that has bailed on small cars ( except for Koreans called Chev and Pontiac) Ford has small world cars. Fiesta then, Focus now.
Up here in Canuck land, the Ford Ranger truck is everywhere.
The cute little Fiesta *is* a world car.
https://en.wikipedia.org/wiki/Ford_Fiesta
The hardest thing to sell in America is a small fuel-efficient car. In June, for example, Ford sold only about 4,000 Fiestas but about 78,000 F-series trucks.
I bought one of the first ones on the lot, a 2011. The six-speed dual-clutch transmission intrigued me. It would have been a great little car if Ford had done that transmission properly, but they did not. Control options were a joke and failures were so common that Ford extended the warranty on the thing. We traded ours off after 4.5 years, before we had any problems. I am not up to speed on current drivetrain options, but the car around it is a winner in my book.
Also Kia bought into NFL at a BIG price, adding to the cash flow woes.
Korea, like Japan, can’t sell cars here at a profit without currency manipulation. To be fair, Korea is only doing what the IMF told it to do after the last Asian financial crisis. There’s a belief that large foreign reserves will help these countries weather the next crisis, so selling cars here is one way to do that. Unfortunately, the IMF is as competent as the world’s central banks when it comes to crisis management, and it’s precisely the countries with large trade surpluses and foreign reserves that will suffer the most in the next crisis, which may be sooner than people think.
I think it probably has to do with the THAAD Missile Defense issue, china has been pressuring all south korean companies.
There are only two large US car companies.
Fiat Chrysler Automobiles (FCA) is an Italian company domiciled in the Netherlands for tax purposes.
To describe FCA as an American company is the same as saying that Toyota is American because they make cars in Tennessee.