Hyundai, Kia Expect Tough Business Conditions in 2016

SEOUL— Hyundai Motor Co. and its affiliate Kia Motors Corp. are bracing for another challenging year after missing their sales target in 2015 largely due to weak performance in China—the biggest market for the South Korean auto makers.

Hyundai and Kia, which together form the world’s fifth-largest auto maker by sales, on Monday predicted a combined 1.6% increase in global sales to 8.13 million vehicles in 2016.

This is a sharp divergence from just a few years ago, when the auto makers managed to achieve double-digit growth, aided by a weak local currency, sleek designs and clever marketing. Group sales rose 24% in 2010.

However, momentum has weakened in recent years as the won has strengthened, particularly against the yen, placing the Korean car makers at a disadvantage to Japanese rivals such as Toyota Motor Corp. in overseas markets.

“The auto industry is going through a structural change with intensified competition and a move toward smartcars,” Chairman Chung Mong-koo told employees in a New Year’s speech. “Meanwhile, the global economy will continue its phase of low growth, weighed by China’s slowdown, low oil prices and the U.S. rate increases.”

Mr. Chung said the auto makers this year will focus on enhancing brand identity by launching several environmentally friendly cars and aggressively promoting sales of luxury models, which are also more profitable.

In November, Hyundai launched the Genesis, formerly the name of its midsize luxury sedan, as a stand-alone premium brand to boost earnings and burnish its reputation. The company plans to showcase the G90, the first car under the new brand, at the 2016 North American International Auto Show in Detroit next week.

In its latest effort to build a more high-end image, Hyundai said last week it had hired a former Lamborghini executive, Manfred Fitzgerald, to lead the company’s global strategy on the new Genesis luxury brand. Mr. Fitzgerald joined a growing roster of non-Korean executives at Hyundai, which has also hired Luc Donckerwolke, a veteran designer for the Audi and Bentley brands at Volkswagen Group, to work on Genesis models starting this month.

The Korean sister companies, which rarely miss their annual targets, sold about 8 million cars globally in 2015, falling short of their goal of 8.2 million units.

The companies attributed the weak performance to their sluggish sales in China—the world’s largest auto market—as local manufacturers, armed with cheaper but improved models, rapidly gained ground against foreign brands.

Hyundai and Kia have benefited in recent years from the surge in demand for vehicles in China, which became the largest market for the Korean car maker in 2009. The increasing reliance, however, turned into a drag after economic growth moderated last year.

Some foreign auto makers, however, defied the economic slowdown. Honda Motor Co. sold more than 1 million cars in China last year, exceeding its target of 950,000 cars for the year, it said Monday. Its sales of new and redesigned vehicles, including the Vezel crossover sport-utility vehicle, have been strong in 2015.

Analysts expect Hyundai and Kia’s China sales to bounce back thanks to tax cuts on small cars this year, but demand in Russia, Brazil and other key emerging markets will remain depressed, hurting the auto makers’ profitability.

Hyundai, which posted its seventh straight quarterly profit decline in the July-September period due to weak sales in China and emerging markets, will report fourth-quarter results on Jan. 21.

Hyundai shares slumped 14% last year after falling by nearly a third in 2014. Among global auto makers, it was the second-worst performing stock last year after scandal-hit Volkswagen AG.


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