The latest Hyundai Palisade, which was launched in Seoul on Wednesday. The SUV and its manufacturer face rough roads ahead. Photo: Hyundai Motor

As South Korea basks in spring sunshine and the country cautiously exits social distancing, Hyundai Motor launched a new SUV on Wednesday – but the company’s earnings have sprung a severe leak.

While Hyundai may be buoyed by some positive data in its recovering home market, on the global front, the year ahead looks stormy as Covid-19 scythes through sales and cuts deeply into the outlook for the sector as a whole.

Production resuming

The latest version of the Korean automaker’s flagship SUV, the Palisade, went on sale on Wednesday, retailing at 35 million won (US$29,000) for the basic version.

Moreover, the company is coming out of hibernation and revving up production that had stalled in the early stages of the pandemic, according to local news agency Yonhap.

Hyundai Motor and sister company Kia Motors, which operate 18 domestic factories, said they have partially resumed operations at 15. Overseas, the two firms operate 17 plants.

Operations resumed at their two US plants, in Alabama and Georgia, on Monday. Seven plants in China are in partial operation, and production is set to resume at Hyundai’s India factory this week.

Plants in Czech Republic, Turkey and Russia are also operating, the company told Asia Times.

However, Hyundai does not disclose production rates, and the latest numbers are far from sunny.

Numbers in free fall

In a statement emailed to foreign reporters, Hyundai announced on Wednesday that April sales totaled 159,079 units – down 56.9%, year on year. While sales in South Korea, which has not undertaken lockdowns and is widely seen as having successfully contained the virus, slid only 0.5% to 71,042 units, global sales plummeted 70.4%, to 88,037 units. 

Kia, which released a new model in March, recorded slightly brighter fortunes for the month. April sales totaled 134,216 units, down 41.1% year on year. Sales in South Korea rose 19.9% to 50,361 units, while international sales dropped 54.9% to 83,855 units.

The disparity between local and global sales is worrisome, given Korea Inc’s heavy dependence on foreign trade. And the April numbers represent a serious deterioration of Q1 numbers, released earlier.

In its Q1 earnings report, Hyundai saw net profits down 42.1% year on year to 552.7 billion won ($451 million), and global vehicle sales volumes fall 11.6% year on year to a total of 903,371 units in total.

The outlook for H2 is grim.

The company “expects to face weakening profitability in the second quarter as the impact of Covid-19 continues to hurt auto demand around the world amid a sluggish global economy,” it said in the report. “Increased volatility in international oil prices also might slow demand, further blurring the business outlook.”

Dark days ahead

Market watchers see a storm ahead, both for the two leading Korean players and the autos sector as a whole.

On April 9, Fitch Ratings downgraded its rating of Hyundai Motor Group, which encompasses Hyundai and Kia, to negative.

The outlook “reflects concerns that the ongoing coronavirus pandemic will have a negative impact on the company’s operating performance and financial profile, especially in 2020, and delay the recovery in the company’s profitability,” Fitch wrote.

“It also reflects the uncertainties regarding the length and magnitude of the expected downturn in the global automobile industry.”

In terms of the overall industry, the agency anticipates “major supply and sales disruption to continue into 2Q20, although there could be some improvement in 2H” and it forecast a fall in global sales of around 15%, before a rebound in 2021.

Still, Fitch expected Hyundai to weather the storm.

“Fitch believes the companies have the financial flexibility to manage the downturn in the industry,” the ratings agency added. It cited a weak won rate against the US dollar, a sufficient pool of liquidity and “excellent access to domestic banks and capital markets.”

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