Manufacturing News

Hyundai, Kia sales plunge as regional tensions persist

Hyundai Motor Co.’s China sales plunged 64 percent year on year to 35,049 vehicles in June as the Korean automaker continued to suffer from regional political tensions.

Koh Tae-bong, an analyst at Hi Investment & Securities, posted sales results for the period, citing company data.

For the period, Kia Motor Corp. deliveries in China slid 58 percent to 19,003 vehicles, according to Koh.

Hyundai and Kia have not released China sales results for June.

South Korea's carmakers on Tuesday blamed strained Chinese relations for a massive sales shortfall in China. But foreign affairs only partly explains the story.

Just as Bejing's boycott over Seoul's plan to host a U.S. missile defense system hurt Korean makeup and toy brands, it also hit the auto industry. In the first half of the year, China sales at Kia Motors Corp. and Hyundai Motor Co. fell 47 percent from the year before.

But actually, the carmakers were losing market share well before the boycotts began.

Crossovers and SUVs, whose extra space and perceived safety benefits have won over Chinese consumers, illustrate the point. Korean brands controlled 6 percent of China's light-vehicle market in March, down from 18 percent in 2009, according to Bloomberg Intelligence and researcher China Automotive Information Net.

Taking over the roads are homegrown companies like Geely Automobile Holdings, which responded to the SUV popularity surge faster than most of the foreign competition. Domestic brands have also improved quality and performance over the last decade while undercutting overseas marques on price.

Local companies now command 52 percent of the nation's crossover and SUV market, up from just 23 percent in 2009, Bloomberg Intelligence and CAIN data show.

Korean firms can learn from the recent plight of Japanese automakers such as Honda Motor Co. and Toyota Motor Corp., who lost their footing after a 2012 dispute over islands in the East China Sea sparked tensions that throttled auto sales. The companies never fully recovered from what was supposed to be a short-term hit because executives assumed that business would return to normal after political pressure simmered down.

They didn't appreciate that Chinese consumers tend to have little brand affinity. By the time the political rhetoric ebbed, tastes had changed, and the Japanese couldn't offer the latest bells and whistles.

The same thing is happening now to Kia and Hyundai, which lag in the nation's three fastest-growing areas: SUVs, electric vehicles, and luxury models.

Revving up production of crossovers and SUVs is the most pressing matter. They currently make up a fifth of China's car market, suggesting there's room to grow if the love affair with large vehicles continues. In the United States, SUVs and trucks make up two-thirds of the market.

Korean car brands also will have to go back to their roots and sell vehicles at lower prices.

That's because the number of crossover and SUV models on sale in China has quadrupled since 2010 and competition is rising, according to Bloomberg Intelligence analyst Steve Man.

Profit-nipping price wars are bound to follow, and Korean manufacturers are going to have to participate in order to win back Chinese consumers.

If Korean carmakers want to rebound from the Beijing-induced speed bumps, they're going to have to worry less about statecraft they can't control and more about the business they can. Even in China, good products at reasonable prices tend to trump short- term political woes.

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