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Hyundai Suffers 10th Straight Profit Drop, Says U.S. ‘Competition to Intensify’

Inside A Hyundai Motors Ltd. Manufacturing FacilityInside A Hyundai Motors Ltd. Manufacturing Facility
Hyundai Motor Co. Ioniq electric vehicles (EV) at the company's plant in Ulsan, South Korea, on Monday, July 4, 2016. SeongJoon Cho/ Bloomberg via Getty Images

South Korean automaker Hyundai Motor (HYUNDAI-MOTOR) slipped to its 10th straight profit drop in the second quarter and warned of a tough second half in store as it soaks up stiff competition and shrinking demand for its mainstay sedans in the United States.

The world’s fifth-biggest automaker, together with affiliate Kia Motors (KIMTF), said on Tuesday its April-June net profit slipped 2.6% to 1.66 trillion won ($1.46 billion) from a year ago. That was just below a consensus forecast of 1.67 trillion won from a Reuters’ poll of 19 analysts.

Over the past couple of years, the automaker has bet on new versions of former hit sedans to help it reverse out of its long-term profit slowdown. But low oil prices have steered United States consumers – the firm’s second-biggest market – back to fuel-heavy sport utility vehicles and pickups, hitting Hyundai harder than peers like General Motors (GM) because of its sedan focus.

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“We expect competition to intensify in the U.S. market in the second half,” Zayong Koo, Hyundai vice president in charge of investor relations, told an earnings conference. Koo said sales incentives to coax buyers into showrooms jumped in the first half, without saying how much the promotions cost Hyundai.

“The quality of U.S. sales deteriorated in the first half,” Koo said, noting Hyundai sold more vehicles for corporate fleets in the half – cars that carry lower profit margins.

To offset the sedan weakness, Koo said, Hyundai has started production of Santa Fe SUVs at its Alabama plant, targeting annual output of 50,000 cars.

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Hyundai warned its outlook for the second half had been made more uncertain by Britain’s June 23 vote to leave the European Union, clouding business prospects.

The firm also has problems at home: It suffered partial strikes for four days last week in a dispute with the trade union that represents most of its domestic workforce.

The automaker said revenue rose 8% in the second quarter from the same period a year ago to 24.68 trillion won, while operating profit inched up 0.6% to 1.76 trillion won during the period.


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That reflected a 4% increase in Hyundai‘s global vehicle deliveries in the period to 1.29 million vehicles, driven by a rebound in China, the world’s biggest auto market.

Hyundai has the highest sales exposure among major automakers to emerging markets like Brazil and Russia, and weakness in those countries has been a long-standing problem. Sales from its Brazil factory slipped 6% in the second quarter, Hyundai said.