Hyundai Motor Co. reported a 12 percent drop in its first quarter net profit as demand declined in China, Russia and Brazil and marketing costs soared in the U.S.
Hyundai pegged net profit for the quarter ending March at 1.77 trillion won or $1.54 billion, down from 1.98 trillion won for the same period last year. It was the ninth consecutive quarterly decline but it beat market expectations of 1.44 trillion won.
First quarter operating profit dropped by 16 percent from 1.59 trillion won to 1.34 trillion won while revenue increased by 6.7 percent from 20.94 trillion won to 22.35 trillion won.
2015 saw the emergence of Chinese local brands and the growing preference of Chinese consumers for sports utility vehicles over sedans, following the trend worldwide. After a full year sales fall in China in 2015, the combined car sales of Hyundai and its affiliate Kia Motors Corp. slid for the third straight month.
This development did not bode well for Hyundai and Kia's efforts to maintain their standing as the No. 5 auto maker by sales.
Despite concerns about overcapacity and dwindling demand, Hyundai's plans for a fourth plant this year and a fifth plant in 2017 will push through.
"China is a crucial market for us. We need to raise our presence there," said finance chief Choi Byung-chul.
What Some Beijing Motor Show 2016 Participants Anticipate
The slowing economy of China, being the world's biggest auto market, is taking a toll on car makers worldwide.
Global car makers meeting at the Beijing Motor Show 2016 that is running from April 25 to May 4 admit that the challenges are increasing.
While the Chinese auto market is expected to grow, it will do so at a slower pace with car prices dropping, sales growth sliding and emissions regulations getting stricter.
In a Wall Street Journal report, Toyota Motor Corp. said it is uncertain if it can meet the targets it set for itself in the Chinese market for 2025. Changing requirements for fuel efficiency and emissions call for adjustments to reconsider a product lineup that will enable the company "to secure the volumes and profit as well," said Hiroji Onishi, head of Toyota's China region.
Much unlike its ambitious 2015 plan of doubling capacity in China, Ford Motor Co. is not optimistic about meeting its projected capacity of 2.1 million vehicles for this year. Because of fierce competition, Ford China chief executive John Lawler said China is starting to look like a mature market.
Volkswagen AG proudly announced last year that it would raise production capacity by 40 percent, producing 5 million cars in the next five years. But it looks like Jochem Heizmann, the company's chief executive in China, is leaning towards staying on the plans.
In the U.S market where low oil prices have driven increased appetite to SUVs and other truck models, Hyundai posted an insignificant 1 percent increase in sales in the first quarter.
Analysts foresee an improvement in the company's profits if it shifts its product mix to accommodate new SUV-like models in its existing sedan product line.
Photo: Michael Coghlan | Flickr