Stung by hefty recall provisions, Hyundai, Kia deliver poor Q3 results

Hyundai Motor Co. and its affiliate Kia Motors Corp. on Monday posted lackluster third-quarter earnings results due to hefty provisions for recalls and quality management.

For the three months that ended in September, Hyundai swung to a net loss of 188.8 billion won ($167 million) from a net profit of 460.5 billion won a year ago. Kia's net profit plunged 59 percent to 133.68 billion won from 325.80 billion won during the same period, the companies said in separate statements.

Hyundai and Kia put aside 2.1 trillion won and 1.26 trillion won, respectively, in provisions for the recall of a faulty engine and preemptive measures for quality management, which was reflected in their quarterly results.

"Vehicle sales improved in advanced markets in the third quarter as border shutdowns eased amid the coronavirus outbreak but quality-related provisions resulted in the net loss," Hyundai Senior Vice President Kim Sang-hyun said in a conference call with analysts.

Late last year, Hyundai Motor Group reached a settlement with car owners over its Theta II gasoline direct injection (GDi) engine for problems, such as engine stall and non-collision fires, in the United States.

Hyundai Motor said last week it will voluntarily recall 77,000 Kona Electric models due to a faulty battery cell component, as 14 cases of fires in the model -- 10 domestically and four overseas -- have been reported since 2018.

Looking ahead, the carmakers said the COVID-19 pandemic-related uncertainties will remain a major drag for them in the fourth quarter, together with the won's strengthening against the US dollar.

The dollar fell to an average of 1,188.54 won in the third quarter from 1,193.24 a year ago. A strong won drives down the value of an exporter's dollar-denominated earnings when converted into the local currency.

The won has risen 3.7 percent so far this month to close at 1,127.70 against the greenback on Monday.  

To ride out such challenges, the companies said they will focus on maintaining profitability based on sales of their new models, such as the Hyundai Tuscon SUV, the Genesis GV70 SUV and the Kia Sorento SUV in global markets.

To revive sales in China, the company said it plans to launch four models -- the Mistra midsize sedan, the Tucson SUV, a customized multi-purpose vehicle and an all-electric vehicle -- in the world's biggest automobile market next year.

"We will overhaul the business structure in China by streamlining dealerships, focusing on competitive models and expanding sales through online channels," Vice President Lee Kyung-tae, managing China Team at Hyundai, said.

Hyundai said it will also begin marketing activities next year before launching Hyundai's independent Genesis brand in China. 

The maker of the Sonata sedan and the Santa Fe SUV has suffered declining sales in China in the past two years after Seoul and Beijing were at odds over the deployment of a US anti-missile system called THAAD in South Korea in 2017.

Hyundai also shifted to an operating loss of 313.8 billion won in the third quarter from an operating profit of 378.5 billion won a year ago. Sales rose 2.3 percent to 27.58 trillion won from 26.97 trillion won during the same period.

Kia's operating profit declined 33 percent on-year to 195.23 billion won in the third quarter on sales of 16.32 trillion won, down 8.2 percent from a year ago. 

From January to September, Hyundai's net profit plunged 69 percent to 741.1 billion won from 2.41 trillion won and Kia's net income plummeted 64 percent on-year to 525.96 billion won.

On Monday, Hyundai rose 2.7 percent to 171,500 won and Kia jumped 3.7 percent to 47,950 won, outperforming the broader KOSPI's 0.7 percent loss. (Yonhap)