Hyundai Profits Fall 37 Percent in Second Quarter

August 7, 2006 Hyundai Profits Fall 37 Percent in Second Quarter By CHOE SANG-HUN International Herald Tribune SEOUL, South Korea, Aug. 7 — Hyundai Motor, the largest South Korean automaker and one of the country’s flagship companies, reported today that its profits fell 37 percent in the second quarter, as labor unrest, rising competition and shifting exchange rates squeezed its margins. The strengthening of the South Korean currency, the won, against the dollar made Hyundai’s products more expensive to consumers in the United States and other overseas markets. By contrast, the company’s main rivals, the major Japanese automakers, benefited from a decline in the value of the yen against the dollar. Hyundai also had to spend more for imported raw materials like oil, rubber and metals, whose prices, generally set in dollars, have risen faster than the won has appreciated. As a result, net profit for the second quarter fell 37 percent from a year earlier to 387.3 billion won ($403 million). Revenue rose 0.8 percent to 7 trillion won, largely because Hyundai raised its car prices; sales volume fell 1.9 percent in its domestic market, though sales abroad improved. Analysts said the company is under increasing pressure overseas. “Hyundai must increase its car prices to compensate for the rising value of the Korean won and the increasing raw material costs, but it’s not easy to do so,” said Kim Hag Ju, an auto industry expert at Samsung Securities in Seoul. Lost production from a monthlong strike and the cost of a settlement agreement calling for bonuses to its workers will cut into sales and profit for the rest of the year, analysts said. The strikeended July 26. Meanwhile, Kia Motors, an affiliate of Hyundai Motor and the second-largest South Korean automaker, said todat that its net profit in the second quarter fell by more than two-thirds to 45.1 billion won ($47 million), from 148.3 billion won ($154 million) a year earlier. Its sales climbed 5 percent to 4.46 trillion won ($4.6 billion). Kia, which sells most of its cars outside Korea, suffered from the stronger won. At home, its sport-utility vehicles face growing competition from Daewoo Automotive, which is controlled by General Motors. The declining market value of Kia’s shares contributed to the falling profits of its major shareholder, Hyundai Motor. Hyundai has suffered a series of misfortunes this year, beginning with the arrest of its chairman, Chung Mong Koo, in April on bribery and embezzlement charges. His absence delayed talks with the union during the strike. Hyundai’s stock price has dropped 20 percent this year. Although sales are increasing, Hyundai factories in the United States, China, India and Turkey are not doing as well as expected, said Kim Jae Woo, an analyst at Mirae Asset Securities in Seoul. Mr. Kim said he foresaw improved sales in the American market as Hyundai promotes its new Santa Fe sport utility vehicle there. “But I don’t see any new immediate improvements in the other overseas factories,” he said.