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Hyundai Quarterly Profits Take Another Hit

Maker blames discounts applied to small cars.

by on Jan.25, 2017

Hyundai is going to need to sell more Santa Fe models in the U.S. to improve its profits. The company plans to invest in its plants to make that happen.

Hyundai Motors continues to struggle as it reported its lowest quarterly profit in five years. The South Korean maker blamed the lower-than-expected numbers on discounts offered on its small cars.

The company reported a fourth-quarter net profit of $858.07 million, down 39% from a year ago and the lowest since the first quarter of 2012. Analysts polled by Thomson Reuters I/B/E/S expected a profit of about $1.2 billion.

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Higher U.S. incentive spending – which Autodata Corp said jumped 30% to $2,582 per vehicle in December from a year ago for Hyundai, above an average industry increase of 23% – helped to drive down the company’s results for the quarter, Reuters reported.

Executives warned that 2017 will be challenging as competition heats up for an ever-shrinking pool of buyers. The company’s bread-and-butter is its high-quality sedans; however, car sales in the U.S. – its largest market – have been on the decline for several years. In fact, cars comprise about 40% of new vehicles sales.

(Hyundai next to roll out U.S. investment plans. Click Here for the story.)

While the company does have a few SUVs, it lacks a full portfolio of trucks and utility vehicles. As a result, its ability to sell in big numbers in the U.S. severely hampered.

The South Korean automaker offered deep discounts to move some of its smaller cars in the U.S.

The company also made note of the rhetoric coming from the Trump Administration, in particular, his talk of increasing tariffs on non-U.S.-built vehicles as well as his recent move to pull the U.S. out of the Trans-Pacific Partnership.

“We will continuously monitor the policy changes of the Trump government, and minimize its impact on our sales and profitability,” Zayong Koo, Hyundai vice president in charge of investor relations, said at a earnings call on Wednesday, after reporting a 12th straight drop in quarterly profits, according to Reuters.

(For more on the Trans-Pacific Partnership announcement, Click Here.)

Hoping to blunt some of the potential headwinds, Hyundai announced it planned to invest more than $3 billion in the U.S. during the next five years, including the construction of a new plant, which could build the brand’s newly introduced Genesis luxury line as well as more of its Santa Fe SUVs.

The company has also been looking at adding a pickup to its line-up, showing off the Santa Cruz concept last year, but has been non-committal on adding the truck to its U.S. family of offerings.

Recently expelled Hyundai America CEO David Zuchowski told TheDetroitBureau.com last year Hyundai needed more production capacity in North America and that would likely come from a new U.S.-based plant.

(To see why Hyundai missed its global sales target last year, Click Here.)

The South Korean group also plans to retool existing factories in the Montgomery, Alabama, and West Point, Georgia, and bolster its research on self-driving cars, artificial intelligence and other technologies.

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