Once a symbol of economic growth in South Korea, Hyundai Motor is now struggling to get out from under weak earnings, damaging worker strikes and a lackluster product lineup.
Zero production
On Monday, Hyundai's global production hub in Ulsan, in the country's southeast, did not produce a single vehicle, nor did two other sites in South Korea after workers went on an all-out strike for the first time in 12 years.
Hyundai's union, known as the world's toughest labor group, has had 19 partial strikes this year. Workers are already well compensated, so others just give the group a cold eye. But it remains undaunted.
With the company's earnings weak, the union apparently was concerned that its demands may not be having the desired impact, hence the decision to go on an all-out strike.
Hyundai has sustained an estimated 2 trillion won ($1.82 billion) loss due to production disruptions affecting more than 100,000 vehicles.
Bigger problem
Labor is hardly the only headache for Hyundai's management. Its mainstay sedans, which had driven growth, have lost momentum. So dealerships are resorting to discounts to shore up sales.
A Hyundai dealership in Beijing was recently seen offering a whopping 40,000 yuan ($5,996) discount. Ahead of a weeklong holiday period in China, the showroom is offering an up to 30% discount on the ix25 compact sport utility vehicle, even at the risk of losses. A staffer lamented that vehicles are not selling even with the stepped-up incentives.
Hyundai's Chinese sales, including group brand Kia, dipped 1% in the January-June period. This is an improvement from a year earlier, when declines were sharper. Yet because of its heavy reliance on discounting, Hyundai is now labeled a "bargain seller."
In the U.S., Hyundai's sales are up 2.5% this year. This in an American market averaging 0.6% growth, according to research company Autodata. So the South Korean automaker looks to be doing well.
But this is a result of low-price sales to such buyers as leasing companies to clear away piled up inventory, points out an analyst at Hanwha Investment & Securities. The analyst estimates that Hyundai's U.S. sales company sustained a net loss in the January-June period.
Outperformed by Kia
Hyundai's operating profit shrank year on year for nine straight quarters through the April-June period. Kia Motors, an equity-method affiliate not included in Hyundai's group earnings, enjoyed profit growth for a fourth straight quarter.
A slowdown in sales of the Sonata -- a Hyundai sedan that had posed a threat to Japanese competition -- is taking a toll, as is the absence of a new hit product. SUVs are increasingly popular in China and the U.S., but these accounted for just 25.6% of Hyundai's sales in the January-June period, compared with 43.8% at Kia.
In order to boost earnings, Hyundai beefed up U.S. production capacity of the Santa Fe SUV by around 50% in June, by reallocating capacity dedicated to sedans. The plan is to increase SUV output elsewhere as well.
Kia, which joined the Hyundai group in 1998, has little interaction with Hyundai except for exchanges of top managers. Development, production and sales operations are all separate. Kia is said to have a more open corporate atmosphere.
Lagging in eco-cars
A miscalculation in environmentally friendly vehicles is another sore spot. Hyundai initially positioned fuel cell vehicles as the core of its green-technology efforts and announced in 2013 its first mass-production facility for such vehicles. But their sales have been low.
Hyundai now aims to broaden its green offerings from the 12 on the market as of June to 28 by 2020. The company is finally shifting gears to focus development on plug-in hybrids and electric vehicles.
The South Korean automaker looks lost and in need of innovation in green technology and autonomous driving. And the disadvantages of its solo journey have come into clear relief as Japanese, U.S. and European rivals collaborate with major partners from within and outside the auto industry to drive innovation.
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