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Hyundai Motor sees sales opportunity in crisis

Source : REUTERS
Last Updated: Thu, Sep 08, 2011 11:31 hrs
Hyundai Motor sees sales opportunity in crisis

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 grab more market share.

But Hyundai, which posted annual sales gains of at least 10 percent for the past two years, sees growth softening next year due to capacity constraints, William Y.W. Lee, executive vice president and head of Hyundai Motor's Overseas Sales Division, told Reuters in an interview on Thursday.

Hyundai has "high expectations" it will post global sales of 4 million vehicles this year, versus its previous target of 3.9 million, Lee said.

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"Crisis can be an opportunity for Hyundai. The crisis can bring changes to the market dynamics as the consumer has a stronger desire for value," said Lee.

Rising unemployment, government austerity measures and anaemic growth in major developed economies have fuelled expectations that global auto sales will suffer.

Fiat CEO Sergio Marchionne in late August confirmed the Italian automaker's 2011 targets "for now", seeking to dispel concerns about a slowing U.S. economy.

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Lee said Hyundai had cut its overall U.S. industry sales forecast for 2012 by 8 percent to 13.5 million vehicles, but remained confident of achieving its own higher targets for this year.

SUPPLY CONSTRAINTS

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 become one of the biggest threats to global automakers in recent years, increasing sales and gaining market share during the global financial crisis.

Hyundai and affiliate Kia Motors, together the world's No.5 automaker by sales in 2010, have been catching up on the likes of Toyota Motors on quality.

Much of the credit for that has gone to chairman Chung Mong-koo, an iron-fisted 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 Motor's Civic in the key U.S. market, while growth in emerging markets such as India and China has also been strong.

But Hyundai's sales growth is seen easing next year because of its stretched capacity. Hyundai's global capacity utilisation is running at over 100 percent and U.S. dealers can't stock enough of Hyundai's flagship models due to low inventories.

Lee reiterated Hyundai had no plans to expand production facilities.

"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 boost Europe sales next year by 20 percent 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 rolled out the i40 model, also 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 percent to 400,000 units this year despite the market's expected dip, after outperforming with a 7.4 percent 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.

Hyundai's market share in Europe was only 2.6 percent last year, compared with its 4.6 percent share in the United States, 6.3 percent share in China and 19.7 percent 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 percent 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 United States, Hyundai is facing rising competition from Japanese rivals who are ramping up production affected by the March 11 quake and rolling out new models.

Toyota recently unveiled its new Camry in the United States, 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 U.S. market, Lee said.

Shares in Hyundai, which have risen 10-fold in the past 10 years, rose 1.3 percent in Seoul on Thursday, versus a 0.7 percent 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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