Hyundai feels the pain in China

Hot on the heels of announcements from their global competitors, Hyundai Motor Corp of Korea has released information on how it too will be cutting prices and reviewing its own line-up of models in China, as sales of passenger vehicles in the largest car market in the world slow to snail’s pace, albeit a very fast snail compared to most of the rest of the world.

China is Hyundai’s biggest market by far and a territory where it has very successfully beaten out their Japanese rivals to become the third largest manufacturer behind GM and VW. So the company will most certainly not be happy about the seemingly prolonged downturn in business and the advent of a much more competitive marketing environment. In fact, Hyundai has been feeling the heat for some time. With profits having fallen for six quarters in a row and with deliveries falling by 8.59% in the first half of the year, they have obviously been spurred into action.

All of the automakers have been wrestling with the new reality of lower sales growth than had previously been enjoyed, and at least some of the downturn is due to the cap on new sales in some cities as the local authorities battle to reduce the choking air-pollution that is blighting so much of China. BMW, Audi, VW and Toyota have already had rebellions in their distribution networks that have left them paying out massive rebates to avoid dealer strikes and defections (see Cooling China creates problems for Car Manufacturers and Toyota set to lose top spot to VW) and will leave them giving financial support for at least the near future to allow the clearance of bloated inventories.

“In the mid to long term, its inevitable for us to cut production costs as the local car manufacturers are aggressively increasing sales with competitive pricing. We also plan to aid business stabilisation of dealers in China so that they may keep an appropriate amount of inventory,” said Lee Won Hee, the CFO for Hyundai China said. Adding dealers and reviewing capacity is obviously high on the “to-do” list of Hyundai management in China, but at this time the company will continue to build China specific vehicles like the Mistra sedan.

Like many others, Hyundai will not make its China sales target this year and will be hoping to make up the short fall in other markets. But with such turmoil in the Eurozone, Russia in free-fall coupled with the stagnant economic growth in China, it is hard to see how and where Hyundai will be able to achieve this.

image: WSJ