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Hyundai Motor sees sales opportunity in crisis

Hyundai Motor sees sales opportunity in crisis
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First Published: Thu, Sep 08 2011. 02 26 PM IST
Updated: Thu, Sep 08 2011. 02 26 PM IST
Seoul: Hyundai Motor expects to beat its 2011 global sales target as the European debt crisis and global economic uncertainty create an opportunity for the Korean automaker’s lower cost models to pick up market share.
Hyundai has “high expectations” it will post global sales of 4 million vehicles this year, versus its previous target of 3.9 million, William Y.W. Lee, executive vice president and head of Hyundai Motor’s overseas sales division, told Reuters in an interview on Thursday.
“Crisis can be an opportunity for Hyundai. The crisis can bring changes to the market dynamics as consumer has stronger desire for value,” he said. “The economic crisis can have some impact on the automotive industry. But I am confident that it would have no major impact on Hyundai.”
Rising unemployment, government austerity measures and anaemic growth in major developed economies have fuelled expectations that global auto sales will suffer.
Fiat chief executive officer (CEO) Sergio Marchionne in late August confirmed the Italian automaker’s 2011 targets “for now”, seeking to dispel concerns about a slowing United States (US) economy.
For much of the early part of its 44-year history, Hyundai Motor was seen as a maker of cheap, low-quality vehicles. Its first car, the Pony, was made with a design from Italy and borrowed engine, suspension and transmission technology from Japan’s Mitsubishi Motors .
Hyundai’s earlier poor quality was a target of media ridicule. The BBC’s popular “Top Gear” show once suggested Hyundai’s Accent subcompact should be renamed the “Hyundai Accident” and said it was worse than a cheap lunch.
But Hyundai has emerged as one of the biggest threats to global automakers in recent years, increasing sales and gaining market share during the global financial crisis.
Hyundai posted annual sales growth of more than 10% for the past two years, even in 2009 when the global industry declined because of the economic downturn.
Supply constraints
Hyundai and affiliate Kia Motors, together the world’s number five automaker by sales in 2010, have been catching up to Toyota Motors on quality over the past decade.
Much of the credit for that has gone to chairman Chung Mong-koo, an iron-fist leader who has focused on raising standards and built a disciplined, military-like culture at the company.
Models such as the Elantra and Sonata, whose features and styling have won over cost-conscious buyers, have taken market share from the likes of Toyota’s Camry and Honda Motors in the key US market, while growth in emerging markets such as India and China has also been strong.
But Hyundai’s sales growth is seen easing this year because of its stretched capacity.
Lee said the South Korean automaker expected to see sales volume growth slowing next year because of its stretched capacity, but reiterated that it had no plans to expand production facilities. “Our sales growth next year will fall short of this year’s, but we will continue to grow sales next year,” he said.
“Indeed, crisis is an opportunity for Hyundai and will do more good for them than harm, as people will stay with more affordable brands rather than switching to luxury cars,” said Jung Kyun-sik, a fund manager at Eugene Asset Management.
Jung argued Hyundai should focus on building margins and avoid costly battles for volume and market share, but not everyone agrees.
“Qualitative growth has its limits, and Hyundai should restart its growth engines again,” said Park In-woo, an analyst at LIG Investment & Securities.
Europe ambitions
Lee said he hoped to accelerate Europe sales next year by 20% to 480,000 vehicles, including 110,000 of its new i30 compact model, though he added that the targets were not final.
The company plans to unveil a successor to the i30 compact, its best-selling model in Europe, at the upcoming Frankfurt Motor Show. Hyundai has rolled out the i40 model, which is tailored to the European market, in September.
The South Korean car maker is on track to boost its total vehicle sales in Europe by about 10% to 400,000 units this year despite the market’s expected dip, after outperforming with a 7.4% rise in sales last year, Lee said.
Hyundai plans to reach full capacity at its Czech plant of 300,000 cars per year in the autumn, which produced 200,135 vehicles in 2010.
Hyundai’s market share in Europe was only 2.6% last year, compared with its 4.6% share in the US, 6.3% share in China and 19.7% share in India.
“We have been weak in the European fleet market, which accounts for around half of the market. We will expand our fleet sales, which will play a big role in helping us achieve a 5% market share in Europe for the long term,” he said.
The recently approved free trade agreement (FTA) between South Korea and the European Union would also give Hyundai and Kia a price advantage with the removal of tariffs on imported cars five years down the line.
In the US, Hyundai is facing rising competition from Japanese rivals who are ramping up production affected by the 11 March quake and rolling out new models.
Toyota recently unveiled its new Camry in the US, aiming to recover lost momentum with price cuts and a high-powered ad campaign for America’s best-selling car.
Hyundai may take a short-term hit from the new model launch but it is not worried about the longer term and will not increase its incentives in the US market, Lee said.
Shares in Hyundai, which have risen 10-fold in the past 10 years, rose 1.3% in Seoul on Thursday, versus a 0.7% rise of the benchmark index .
Hyundai is trading at a forward price-to-earnings ratio of 7.8, much cheaper than the 18.7 times Toyota is trading at and compared with 13.8 for Honda Motor, according to Thomson Reuters data.
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First Published: Thu, Sep 08 2011. 02 26 PM IST