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Hyundai’s China sales plummet with missile crisis

Reuters

A man cycles past a Hyundai Motor Co. plant in Beijing on Aug. 30.

BloombergHONG KONG (Bloomberg) — At a factory in northeast China making Hyundai cars, employees aren’t sure from one day to the next whether their workplace will be open. Chinese buyers are shunning the automaker because of political tensions over a missile-defense system, with sales plunging 64 percent in the aftermath.

The plant in Cangzhou closed multiple times in the past six months, said a worker who doesn’t want to be identified for fear of losing his job. Assembly lines shut for a week in August, then resumed operations for a day before closing again, he said. Another stoppage occurred this month.

These start-and-stop operations are the new normal for Hyundai Motor Co. in the world’s largest auto market, said Bloomberg Intelligence analyst Steve Man. Hyundai already curtailed production there by two-thirds, and business may get even worse after South Korea added more launchers to the missile system in response to North Korea testing more nuclear weapons despite international condemnation and sanctions.

Dealers in China say they’re losing thousands of yuan on every Hyundai sale because of steep discounts, and some may drop the brand.

“It doesn’t seem like there’s any light at the end of the tunnel,” Man said. Hyundai’s Seoul-listed shares have dropped 7.5 percent this year, compared with a 16 percent increase in the benchmark Kospi Index.

The state-controlled Chinese media is piling on, too. The Global Times, a tabloid affiliated with the Communist Party mouthpiece People’s Daily, said local partner BAIC Motor Corp. was fed up with Hyundai’s “greed and arrogance” in resisting proposals to cut costs by using more Chinese suppliers. BAIC declined to comment.

One China-based supplier stopped delivering parts last week for air-intake systems because of delayed payments from the carmaker’s local venture, prompting the Cangzhou plant to halt production temporarily.

The China collapse is just one of multiple headaches for South Korea’s biggest automaker. Hyundai’s vehicle sales worldwide fell 6 percent in August, the sixth consecutive month of decline.

Net income in the second quarter fell 51 percent to 816.9 billion won, and the company said it expected a tough second half of the year.

S&P Global Ratings on Friday downgraded its outlooks for Hyundai and affiliate Kia Motors Corp. to negative from stable. Hyundai and Kia “will continue to face profitability pressures over the next 12-24 months because of intense competition and difficulties in its Chinese operations,” the ratings agency said.

Hyundai and Kia are expected to sell a combined 1 million vehicles in China this year — a plunge of at least 40 percent from a year earlier, the agency said.

Beijing Hyundai, the joint venture with Beijing-based BAIC, lost 210 billion won ($186 million) in the first six months of 2017, according to regulatory filings. In the same period a year earlier, the joint venture earned 700 billion won.

Beijing Hyundai sold only 361,000 cars in the first half of this year, a 29 percent decline from a year earlier — before the THAAD missile system was installed in South Korea. Revenue fell 52 percent to 4.57 trillion won.

“THAAD is the trigger leading to the current situation,” said Wang Cun, who runs the committee overseeing imported cars at the China Automobile Dealers Association, a trade group.

The stumble comes even as China’s vehicle sales increased 5.3 percent in August, according to the China Association of Automobile Manufacturers. The best performers include Geely Automobile Holdings Ltd., which said August sales skyrocketed 80 percent from the year earlier. Even before the missile crisis, Hyundai struggled to keep pace with local carmakers tapping into customers’ preferences for SUVs.Speech

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