Hyundai Motor is regrettably crawling behind its Japanese and Western rival brand according to report on the business section of the Economist.
The Economist revealed that in 20 years Hyundai Motor (which also controls Kia) went from being barely known to become world’s fifth-biggest carmaker by producing decent and affordable cars cheaper than those made by their Japanese and Western competitors. However, Hyundai Motor has failed to keep up with the times.
Reports say Hyundai’s global sales were stagnant at 96.8trn won ($85bn) last year while its Net profit declined in 2018 for the sixth year in a row. Since 2014 the company’s shares have underperformed major peers such as Toyota, General Motors and Ford, measured in dollars.
Some reasons for this, according to the Economist, lie beyond Hyundai’s control. This is partly because a weak yen had boosted Japanese producers and the trade dispute between America and China, as well as separate threats by President Donald Trump to impose additional tariffs on Korean cars, has not helped.
Hyundai’s business in China was hit by a year-long Chinese boycott of South Korean products that followed a dispute over South Korea’s new missile-defence system in 2017.
‘Many problems, though, are home-grown. Hyundai’s move upmarket in the past few years exposed it to fiercer competition. It missed the shift towards suvs in Europe, America, and most recently China. Its Genesis brand has lagged behind in the highest-margin premium segment. Half of Hyundai’s production capacity in China currently sits idle’.
According to James Lim of Dalton Investments, aggressive expansion may have more to do with Hyundai’s low capacity than the boycott just as rising labour costs at home, where it produces 40% of output, have crimped the carmaker’s ability to compete on price. The firm’s chief strategist, Cho Won-hong said: “Customers still expect our cars to be cheaper than, say, a Volkswagen,”
Cho wants to convince customers to pay more, by betting on future technologies such as hydrogen fuel cells and loosely-defined “integrated mobility” (car-sharing, autonomous vehicles and the like), yet Hyundai channels 3% of sales to research and development, compared with 6% at Volkswagen or Toyota’s 4%, according to Bloomberg.
Some analysts blame the R&D shortfall on high labour costs. Others point to the old habits of the chaebol, the South Korean conglomerates of which Hyundai’s parent company is one of the biggest. In good times it ploughed spare cash from its carmaking arm on speculative property investments in Seoul’s glitzy Gangnam district and bought back a struggling construction company.
Posted By Oyedeyi Samson