Hyundai Profit Soars on China, U.S. Sales

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Designers changed headlamps and the grille to make the car appear bigger and flashier. Meanwhile, engineers hardened the suspension to make the ride better suited for Chinese roads. And tweaking the engine and transmission helped boost fuel efficiency by 8%. That has helped the Yuedong become the best-selling car in China, beating rivals such as the Toyota Corolla, Volkswagen Jetta, and Buick Excelle.

A Shield Against Recession

The Korean company's decision to build up its presence in China and India in the past two years is a shield from the collapse in demand in the U.S. and Europe. By early last year, Hyundai had spent $2 billion on the new plant in Beijing and another in Chennai, enabling it to build small cars in large numbers. In India, Hyundai is the No. 2 carmaker, behind Maruti Suzuki (MRTI.NS), and reported a 12.3% growth in sales to 406,000 cars in the first nine months of this year. That generated a profit of $51 million compared with a loss of $26 million a year earlier.

Of course, that doesn't mean Hyundai wasn't lucky. Had it not been for the global financial crisis that forced the Korean won to plunge against rival currencies, the company could not have embarked on an expensive marketing blitz that earned it a bigger market share, particularly in the U.S. The cheap currency, which at one point fell by some 40% against the dollar, lowers production costs and gives Hyundai higher profits when dollars earned overseas are converted back into the won. Apart from spending millions on advertising during the Super Bowl and Academy Awards, Hyundai could afford to embark on various promotional programs, including a popular scheme that lets customers return their cars and cancel loans without hurting their credit ratings if they lose their jobs.

Such campaigns have paid off. In the first nine months, Hyundai's U.S. sales rose 1.3%, to 342,000 vehicles. That's much better than the overall U.S. market, which shrank by 27%, and Toyota, which was down 28%. The federal Cash for Clunkers program also helped. In August, when the rebates were in full swing, Hyundai's sales surged 47%, to a record 60,467 vehicles.

The big challenge now for Hyundai is whether it can sustain its hot streak when the won starts regaining strength. The currency is now about 20% lower than it was at the end of 2007, but a swift appreciation would erase much of Hyundai's competitive advantage, especially if it were accompanied by a weakening of the Japanese yen. "There's no doubt Hyundai has capitalized on the currency advantage to make a big leap forward," says Lee Hang Koo, auto specialist at the Korea Institute for Industrial Economics & Trade, a Seoul-based, government-funded think tank. "The big test will be if it could maintain its market share without the currency help."

Moon is BusinessWeek's Seoul bureau chief.

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