Hyundai Motor’s second quarter earnings down 24%

Thursday, 23 July,Seoul:Hyundai Motor Co. said on Thursday its second quarter earnings sank 24% due to a sales drop in China and weakness in other markets due to falling currencies.

Its April-June net income was 1.79 trillion won (US $1.54 billion). Sales stayed nearly flat at 22.8 trillion won while operating income dropped 16% over a year earlier to 1.75 trillion won.

The result was slightly higher than market expectations but underlined ongoing challenges besetting South Korea’s largest automaker.

Hyundai said China sales declined as the country’s local makers of cheap vehicles recorded explosive sales growth.

The automaker said its sales target in China needs to be revised down. Foreign carmakers in joint ventures with Chinese firms marked down prices or promised bigger incentives to buyers, pressuring Hyundai to spend more on promotions to boost sales.

Most of the Chinese car market’s growth is coming from domestic car sales while foreign brands are losing market share, reversing a trend for local automakers to lose ground.

Declines in the euro, Russian ruble and Brazilian real pushed down demand for foreign cars in those markets and hurt Hyundai’s bottom line.

Global auto sales are likely to expand just 1% this year from 2014 according to Hyundai’s forecast, lower than its earlier prediction of 4% growth. The reduced forecast is due to lower demand for cars in emerging markets where currencies have rapidly lost their value against the US dollar.

The maker of Sonata sedan said it plans to bring forward the launch of new vehicles and increase the production of sports utility vehicles, which have been increasingly popular.

Hyundai is betting on those SUV models to boost sales during the second half of this year. The company is set to launch a compact sports utility vehicle called Creta in India this month. Its revamped Tucson will be released in the US and Europe this summer, followed by China in the fall.

It sold 2.42 million vehicles during the first half of this year, down 3% over a year earlier. The company said it is on track to meet its annual sales target of 5.05 million units.

Shares of Hyundai Motor jumped 5% before its earnings announcement as the company said it would pay shareholders its first ever interim dividend. The dividend was set at 1,000 won (US $0.90) per share.

The dividend is the latest measure announced by Hyundai to appease shareholders who pressured the company to increase returns after a US $10 billion land deal last year sent its stock price down.