South Korea's
Hyundai Motor Co and Kia Motors Corp have slashed vehicle production in China,
sources said, as diplomatic tensions and competition from
Chinese brands play
havoc on sales and threaten earnings.
China, the
world's biggest auto market, accounted for over a quarter of the pair's 2016
overseas sales but their March sales there were smashed by anti-Korean
sentiment and competition from the likes of Geely Automobile Holdings Ltd.
Hyundai and
Kia saw their combined China sales slump by 52 percent in March from a year
earlier, Yonhap news agency reported on Tuesday, endangering not only the
automakers' earnings but those of South Korean suppliers.
Political
tensions have soared since late February when South Korea's Lotte Group agreed
to provide land for a U.S. missile defense system outside Seoul. The move angered
Beijing, although Seoul says the system is a response to North Korea's nuclear
threat and is not aimed at China.
South Korean
firms including Lotte Group have been targeted in a Chinese backlash involving
boycott calls in state media, protests and suspensions of operations.
But analysts
and sources said the row was just another headache for the South Korean
carmakers, whose long-term challenge has been how to compete in China and the
United States where their mainstay sedans have lost market share to sport
utility vehicles.
"China is
not the goose that lays the golden egg for Hyundai anymore,” said Lee Hang-koo,
a senior research fellow at Korea Institute for Industrial Economics &
Trade.
Hyundai's
problems were a result of its "failed global strategy", he added.
SHIFT CUTS
Kia Motors has
cut production shifts at its China factories, two of the sources familiar with
the matter told Reuters. Hyundai also had eliminated a second shift from its
three factories in Beijing starting mid-March, one of the people said.
The sources declined
to be identified because the matter was not public. The automakers declined to
comment on Tuesday.
Hyundai had
already suspended output at its factory in Hebei from March 24 to April 4. It
was unclear how the shift cuts would affect employment.
Hyundai Motor
has four passenger car factories in China, with one more plant scheduled to
commence production later this year. Kia, Hyundai's smaller affiliate, has
three.
Poor consumer
sentiment towards South Korean products in China had likely dragged down overseas
sales in March, the companies said on Monday without putting a number on the
falls. One source said Kia Motors' China sales likely more than halved in March
from the year prior.
In the United
States, Hyundai Motor posted a sales fall of 8 percent and Kia Motors slumped
15 percent in March from a year earlier. The U.S. market declined 2 percent in
March.
Hyundai Motor
shares fell 2.6 percent and Kia Motors declined 0.8 percent in the wider
market, which was down 0.1 percent as of 0310 GMT.
REUTERS.
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