Hyundai to cut costs amidst global SUV domination

Hyundai Motor Co. is reported to cut its expenditures as it faces its fourth annual profit decline. The automaker is said to have been hit by its absence in the emerging sports utility vehicles (SUV) market.

SUVs have become popular throughout the global market since 2015, where it was named as the fastest growing automotive segment for that year – according to Euromonitor International. With this, Hyundai’s generation of profit has slowed down since it features more sedans in its product line-up.

To cope up with this, the South Korean automaker decided to tighten up its belt to buy more time for it to prepare new models, as well as design revamps.

A Hyundai insider told Reuters that the long term plan was to address mismatch between the market trend and their product line-up. In addition, Hyundai’s revenue costs have risen for five consecutive years, to 81% this year.

Of note, Hyundai Motor Group executives have taken 10% of the pay cut since October, whereas the number of executives alone has risen by 44% in the recent 5 years. Another move was the downgrading of hotel rooms for executive travel, of which video conferencing became an alternative to travel meetings.

Furthermore, Hyundai responded to Reuter’s article by saying it is making various cost saving efforts in spite of shrinking global demand.

“Cutting expenses are stopgap measures, and won't do much to improve its bottom line," said Ko Tae-bong, analyst at Hi Investment & Securities, a Korean investment trust company.

Of note, Hyundai has managed to thrive over the past years, after the global financial crisis. With the help of the Sonata and Elantra sedans, it became the first major carmaker to increase sales in other countries, particularly in the U.S.

However, the South Korean marquee was challenged by its rivals through sales of SUVs as it struggles to maintain its position in the market. Hyundai has lost 40% shares in the past three years, making it the worst performer in global automotive industry.

Moreover, an impending drop of 8 million in sales this year poses for both Hyundai and its affiliate Kia Motors, but is foreseen by Hyundai-Kia executive vice president and research head Park Hong-jae to rise again by next year.

With the given option of cutting notable numbers in its staff budget, Hyundai is also upgrading its SUV offerings, revamping the Sonata, and redirecting its exports from slow-demand markets, like Middle East to the U.S.

More so, the South Korean automaker even replaced the Sonata sedan production with its popular Santa Fe SUV in Alabama, U.S., while also looking forward into making sub-compact models under the project name “OS”, as well as next generation cars that will hit the market in 2019.

While the global market is becoming more favored for SUVs, indicating a possible threat for the South Korean marquee, similar accounts are experienced locally.

Our Auto Industry Insights data same increase in customer demands for SUVs. Data from July, August and, September of 2016 shows an increment of 4% in sales in the SUV segment alone, regardless of the brand.

Source: Reuters