Discounts drive Hyundai profit to five-year low, uncertain 2017 ahead

Hyundai Creta

Hyundai Creta

Hyundai Motors reported its lowest quarterly profit in about five years on Wednesday, hit by heavy discounts to sell its smaller sedans that are losing ground in South Korea and the U.S.

The automaker’s net profit fell 39 percent to 1 trillion won ($858.07 million). Sales for the latest quarter fell 0.1 percent to 24.5 trillion won, while operating profit dropped 33 percent to 1 trillion won.

Hyundai said it expected more uncertainty ahead as competition and protectionism increase.

At its peak in 2011, more than one car in every 20 sold in the U.S. was a Hyundai, driven by sales of Elantra and Sonata sedans. But the South Korean firm’s mainstay sedans have lost their appeal to offerings such as Honda’s Civic in the U.S. and Renault’s SM6 in South Korea.

The situation has been made worse by the increasing popularity of SUVs that have flourished despite their higher fuel consumption in the midst of falling oil prices

And the outlook for sales is now set to be further muddied by worries that U.S. President Donald Trump could impose high tariffs on vehicles shipped in to what is Hyundai’s No. 2 market.

Hyundai said it expects a “challenging business environment” in the U.S. this year.

“We will continuously monitor the policy changes of the Trump government, and minimise its impact on our sales and profitability,” Zayong Koo, Hyundai vice president in charge of investor relations, said in an earnings call on Wednesday.

Hyundai Motors and its affiliate Kia Motors, together the world’s fifth-largest automaker, have one of the lowest ratios of cars built in the U.S. to cars sold.

Shares in the company ended down 3.1 percent after the results, their biggest daily drop since Nov. 10, 2016. “It is quite disappointing in terms of their outlook,” said Kim Jin-woo, analyst at Korea Investment & Securities. “They did not say what investors wanted to hear.”

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