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Tuesday, November 21, 2017

Hyundai and Kia Face a Tough Road in 2017

Auto group tries to adjust to consumer preferences for SUVs
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SEOUL— Hyundai Motor Co. and affiliate Kia Motors Corp. are bracing for another challenging year after missing their sales targets for a second straight year on lackluster performances in China, the U.S. and other key markets.

Hyundai and Kia, which together form the world’s fifth-largest auto maker by sales, on Monday set their combined sales target for this year at 8.25 million cars, up 1.5% from a 2016 target of 8.13 million.

This is a big change from just a few years ago, when the auto makers managed to achieve double-digit growth, aided by a weak local currency, sleek designs and clever marketing. Hyundai-Kia group sales growth peaked in 2010.

However, a change in consumer preferences from sedans—Hyundai’s traditional strength—to SUVs has hurt the company’s sales volumes and profitability.

“The auto industry is facing tougher business conditions with intensified competition and a move toward trade protectionism,” Chairman Chung Mong-koo said in a New Year’s speech.

Mr. Chung said Hyundai and Kia will launch more than 10 new or revamped cars every year to meet changing consumer tastes.

In particular, Hyundai and Kia are trying to expand their lineup of SUVs and accelerate the launches of environmentally friendly cars, he said.

Hyundai grew quickly after the 2008 global financial crisis, with brisk sales of its Sonata and Elantra sedans. But it has struggled to maintain that momentum as rivals’ sales of SUVs have boomed and emerging-market economies have weakened.

The Korean sister companies, which had rarely missed their annual targets, sold about 7.88 million cars globally in 2016, compared with 8 million units in the prior year. The result marks the duo’s first volume decline in nearly two decades.

The Korean auto group has reported sluggish sales in China—Hyundai’s largest market—as local manufacturers, armed with cheaper but improved models, rapidly gained ground against foreign brands.

In the U.S., Hyundai’s second-largest market, top executive Dave Zuchowski resigned in December after the company’s sales underperformed industry growth there.

At home, Hyundai’s sales were hurt by a workers’ strike from July to September that led to billions of dollars in lost production.

For 2017, Hyundai aims to sell 5.08 million vehicles world-wide, while Kia plans to sell 3.17 million cars.

But analysts said the Korean auto group’s goals are tough to achieve.

“There’s hardly any easy market for them this year. Growth will stall in the world’s two largest auto markets. Hyundai aims too high,” said Nomura analyst Angela Hong.

Hyundai will also face an uphill battle against Toyota Motor Corp. and other Japanese rivals in the U.S. that are expected to gain ground on the back of the yen’s weakness and more fresh models, she said.

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