LDN - Business

Hyundai Motor lays out U.S. recovery plan, places hope on new SUV models

[July 22, 2019] By Ju-min Park and Hyunjoo Jin

SEOUL (Reuters) - South Korea's Hyundai Motor Co <005380.KS> laid out its U.S. sales turnaround plan on Monday with an expanded line-up of sport-utility vehicles (SUV), after posting its biggest quarterly profit jump in seven years.

The automaker forecast its U.S. market share to begin rising again from this year, targeting a year-end share of 4.2% versus 3.9% last year, with sales of its upgraded Palisade SUV starting from the second half. It aims for a U.S. share of 5.2% by 2023.

Solid performance at home and in the United States in the three months through June helped offset a sales slump in China, where a slowing economy, trade war with the United States and a lack of competitive models prompted the automaker to suspend production at its oldest factory earlier this year.

To maintain momentum in the United States - its biggest overseas market - Hyundai said it plans to boost the proportion of SUVs in its U.S. line-up to 67% in 2023 from 51% in 2019, as it works to catch up with a shift in consumer preference.

"It was a surprise when Hyundai revealed an aggressive U.S. turnaround plan, but I don't see any problem in it meeting its annual sales target there," said analyst Kim Joon-sung at Meritz Securities.

Hyundai's revival is being led by heir-apparent Euisun Chung following six years of profit decline. The executive vice chairman is widely considered to be seeking investor support to revisit an ownership restructuring plan as he prepares to take over from his 81-year-old father and chairman.

A previous proposal was scrapped last year following shareholder opposition, notably from U.S. hedge fund Elliott Management Corp.

Since last year, Chung has brought in a flurry of foreign executives in a sweeping reshuffle at a firm dominated by Koreans. Most recently, in April, it appointed an ex-ally of Nissan Motor Co Ltd's <7201.T> ousted Chairman Carlos Ghosn as global chief operating officer and Americas chief.

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The Hyundai logo is seen during the first press day of the Paris auto show, in Paris, France, October 2, 2018. REUTERS/Regis Duvignau/File Photo

In the April-June period, U.S. sales gained 3% while a weak Korean won against the U.S. dollar raised the value repatriated income. At home, new models such as the Palisade SUV and Sonata sedan helped sales jump 8.1%.

Overall, net profit for the quarter rose 31.2% to 919.3 billion won ($780.44 million), just short of market estimates but still Hyundai's biggest quarterly percentage gain since the first quarter of 2012.

Operating profit rose 30.2% on a 9.1% increase in revenue, the automaker said in a stock exchange filing.

Even so, the earnings recovery could weaken as Hyundai braces for a potential strike by its domestic labor union that could disrupt supplies of models such as the Palisade both at home and overseas, analysts said.

The union will vote next Monday whether to approve strike action after walking out of annual wage talks on Friday.

A prolonged dispute could have a greater impact on sales and earnings this year because, unlike in the past three or four years of slow growth, sales of its new models have been brisk, Samsung Securities analyst Esther Yim said in a recent report.

Hyundai stock closed down 1.1% after the earnings announcement, versus the broader market's <.KS11> 0.1% fall.

(Reporting by Ju-min Park and Hyunjoo Jin; Additional reporting by Sangmi Cha; Editing by Christopher Cushing)

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