Kia swings to Q3 net loss on costs, weak China sales

Kia Motors said Friday it swung to a net loss in the third quarter due to weak China sales and one-off provisions involving wages.

The country’s second-largest carmaker shifted to a net loss of 291.8 billion won ($258 million) in the July-September quarter from a net profit of 664.3 billion won a year earlier.

Kia reflected approximately 1 trillion won in one-off expenses in the quarterly bottom-line as a Seoul court ruled in August that fixed bonuses and meal costs are part of ordinary wages. Kia was ordered to pay an overdue amount of 422 billion won, or 39 percent of what the union had requested.

Under the court ruling, the company also has to provide higher overtime, severance and other compensation to its workers.

As the court ruling applied to the three years from August 2008 to October 2011, the union may file two additional suits to receive overdue payments for the periods from 2012 to 2017, the company said, adding a retroactive payment is allowed for the previous three years only.

To secure profitability amid growing costs and tough competition with its rivals, Kia has suspended overtime work during the week and over the weekend at all three of its domestic plants from last month.

“There will be overtime work only if there is a need to produce a large volume of vehicles due to high demand in the market,” Kia’s Executive Vice President Han Chun-soo said in a conference call held after the earnings release.

To revive lackluster sales in major markets, Kia plans to launch more customized models in China and the Stinger sports sedan and fully revamped SUV models in the US from late this year, Han said.

The maker of the K5 sedan and the Sorento SUV hasn’t been quick to respond to growing demand for SUVs in the global market in recent years. This has resulted in poor performance this year.

In the September quarter, Kia also shifted to an operating loss of 427.0 billion won from an operating profit of 524.8 billion won a year ago. It inked a quarterly operating loss in a decade. Sales rose 11 percent to 14.108 trillion won from 12.699 trillion won during the same period.

In the January-September period, net profit plunged 65 percent to 863.2 billion won from 2.435 trillion won in the year-ago period. Operating profit also plummeted 81 percent year-over-year to 359.8 billion won from 1.929 trillion won. Sales gained 1.8 percent to 40.530 trillion won from 39.798 trillion won.

For the first nine months, Kia’s sales in China declined 50 percent to 212,677 vehicles from 423,688 units a year earlier. Its U.S. sales fell 18 percent year-on-year to 235,000 units.

Seoul’s diplomatic row with Beijing over the deployment of an advanced US missile defense system, called THAAD, in South Korea is likely to remain a major drag for the Korean carmaker’s performance in the world’s biggest automobile market in the fourth quarter, analysts said. (Yonhap)