Posted by: Ihlwan Moon on July 23, 2009
Hyundai Motor pulled off a coup, posting a record quarterly profit in the three months ended in June while the global auto industry is moaning in the worst slump in decades. The largest carmaker in South Korea said on July 23 its net earnings jumped 48% year-on-year to $650 million in the second quarter of this year. The profit, representing some 10% of its revenue, is 3.6 times its profit in the previous three months and about double what most auto analyst had predicted.
One big reason allowing Hyundai to buck the industry trend is Korea’s weak currency. While the Korean won gained its value against the dollar by about 9% in the second quarter, it is still about 25% weaker than it was at the beginning of last year. Brokerage Korea Investment & Securities figures Hyundai would have reported a loss had it not been for the currency swing.
Another factor that improved Hyundai’s performance was its dramatic sales gain in China and India, particularly in terms of revenues that are translated into the local currency. The Korean company’s joint venture in China sold 257,000 vehicles in the first half of this year, up 56% from a year earlier. But won-based revenues jumped 96% to the equivalent of $3.35 billion. Its India subsidiary sold identical 257,000 in the six months, up 9.7%, but revenues jumped 36% to $1.85 billion.
The record net profit includes contributions from the foreign subsidiaries as well as Korean subsidiary Kia Motors, whose financial results will be released next week. Sales of Korea-built vehicles fell 13% to 403,100 in the second quarter and revenues dropped 11% to $6.5 billion.
Hyundai is also one of the biggest beneficiaries of government stimulus programs in Korea, China, Europe and the U.S. That’s because Hyundai boasts a strong lineup of small cars that tend to be more fuel efficient – an important condition linked to many stimulus packages. Hyundai, for example, increased its domestic sales by 16% year-on-year to 185,400 vehicles in the second quarter, thanks to a 30% cut in sales taxes.
A weak won also allowed Hyundai to increase marketing spending to 6% of its revenues in the first half of this year, up from 3.1% a year earlier. The aggressive marketing push helped boost Hyundai’s market share in the U.S. to 4.3% in the six months, up from 3.1% a year earlier. Its global market share also hit a record high of 5% in the first half of this year, up from 4.3% a year ago.
Could Hyundai’s industry-beating numbers continue? Hyundai executives and analysts think so. Hyundai’s Chief Financial Officer Chung Tae Hwan told an investor conference that he expected Hyundai’s global vehicle sales to top 3 million for all of this year, up at least 7% from last year. Chung said his company will continue to use “benefits from a weak currency to spur our marketing efforts to improve our global presence.” With the won unlikely to strengthen significantly anytime soon, don’t expect the Korean company to take its foot off the accelerator.