Hyundai quarterly profit drops on U.S. recall costs

October 25, 2018 10:33 CET

SEOUL — Hyundai Motor said third-quarter profit plunged by two-thirds, hit by a $440 million one-off charge related to U.S. recalls.

The automaker has had to grapple with costs stemming from U.S. airbag and engine-related recalls.

A U.S. safety group this month called for an expansion of the engine recall, citing a surge in fire complaints. The recall headache adds to a number of issues for Hyundai, which has posted five straight years of annual profit declines due to weak sales in the United States and China, the world’s two biggest auto markets.

Quarterly net profit slid to 269 billion won ($236 million), the lowest amount in more than seven years and well below a SmartEstimate of 831 billion won, according to Refinitiv data. Operating profit slumped 76 percent while sales rose 1 percent to 24.4 trillion won.

Shares in the automaker finished down 6 percent, their lowest level since March 2010. At one point they fell as much as 12 percent.

“The one-off costs were too big, and the question is whether the costs will be just one-off or whether there will be more to come,” said Jung Yong-jin, an auto analyst at Shinhan Investment & Securities, adding that he did not expect a meaningful earnings recovery.

Hyundai predicted profit would rebound in the fourth quarter, helped by new SUVs, but did not elaborate. The one-off charge will also cover expenses related to new technology aimed at detecting engine defects that will be used in existing and upcoming models.

“Transportation authorities in the U.S. and other countries are taking a more rigorous and detailed look at quality matters than in the past,” Lee Hyang, a Hyundai quality executive, said during a conference call with analysts. “We are continuing company-wide efforts to minimize additional quality problems going forward,” he added.

Hyundai also said sharp drops in currencies of emerging markets such as Turkey and Russia weighed on its bottom line.

Santa Fe SUV

Hyundai had been counting on its new Santa Fe SUV to turn around its flagging fortunes in the U.S. where it had missed out on a SUV boom due to its heavy reliance on sedans. But its U.S. retail sales rose only 1 percent in the third quarter. Sales in China declined 6 percent, despite an agreement between Seoul and Beijing last year to normalize ties, putting a diplomatic row that had hit sales of South Korean goods behind them.

The automaker said Santa Fe sales should increase gradually. “The initial response for the Santa Fe is positive,” said Koo Zayong, a Hyundai executive, adding the model will raise the utilization rate of its U.S. factory to above 90 percent in the fourth quarter from the second-quarter’s 86 percent.

Hyundai is also bracing for a decision from the U.S as to whether it will slap tariffs on imports of vehicles and vehicle parts. South Korea has argued it should get tariff exemptions, saying it has already made concessions in the auto sector after a bilateral deal was revised last month.

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