Hyundai and its affiliate Kia are planning to launch a series of new and updated models during the second half of 2015 as they chase a combined global sales target of 8.2 million units for the full year.
IHS Automotive perspective | |
Significance | Hyundai and its affiliate Kia are reportedly planning to roll out new and updated models globally during the second half of 2015. |
Implications | Both Hyundai and Kia are clearly under pressure in most of their key markets, as is evident from their performances during the first half of this year, when their combined global sales were down 2.2% year on year (y/y). |
Outlook | Success in overseas markets is crucial for the duo as they depend on exports for nearly 80% of their total sales globally. Although they have been launching a raft of models in a bid to retain consumer interest, the rising South Korean won amid stiff competition from global rivals is likely to place pressure on their combined global sales target of 8.2 million units for 2015, according to IHS Automotive data. |
Hyundai and Kia are reportedly planning to launch several new and updated models in global markets during the second half of this year, reports local publication the Korea Economic Daily. Citing unnamed sources close to developments, the report suggests that the duo are planning to release as many as 11 models during the period, without giving further details.
Business plans for 2015
For 2015, Hyundai and Kia are planning to sell a combined 8.2 million units globally, which would represent a modest increase of 2.5% year on year (y/y; see South Korea: 2 January 2015: Major South Korean automakers report growth in 2014 global sales; Hyundai-Kia sets 2015 target at 8.2 mil. units). Of this total, the Hyundai brand is aiming to sell 5.05 million units globally. Hyundai's South Korean output is expected to total 1.87 million units (up 0.5% y/y) this year, split between domestic sales of 690,000 units (up 0.9% y/y) and export sales of 1.179 million units (down 1.3% y/y). Hyundai's sales in China are predicted at 1.16 million units (up 3.6% y/y), followed by 635,000 units in India (up 3.6% y/y), 390,000 units in the United States (down 1.5% y/y), 215,000 units in Turkey (up 5.9% y/y), and 781,000 units in other general markets (up 4% y/y). Separately, Kia is targeting global sales of 3.15 million vehicles (ex-factory) in 2015. By plant, Kia is expecting its South Korean operations to achieve sales of 1.71 million units (up 0.2% y/y), with domestic demand predicted at 480,000 units (up 3.3% y/y) and export sales forecast at 1.23 million units (down 0.9% y/y). With estimated overseas plant sales of 1.44 million units (up 7.9% y/y), Kia is forecasting a 15.3% y/y rise in Chinese sales to 745,000 units and a 2% y/y gain in European sales to 330,000 units, although its US plant sales are projected to decline slightly by 0.1% y/y to 365,000 units. In terms of sales volumes, Kia is estimating global retail sales of 3.103 million units (up 6.7% y/y), split between a 3.3% y/y gain in domestic sales to 480,000 units, a 12% y/y gain in US sales to 650,000 units, a 5.8% y/y increase in European volumes to 375,000 units, and a 15.3% y/y surge in Chinese sales to 745,000 units. However, sales in "other markets", which include the Middle East/Africa, Russia, Eastern Europe, Latin America, Canada, and Asia-Pacific, are projected to decline slightly by 1% y/y to 853,000, largely on the back of a forecast 12% fall in Russian sales.
On the investment side, Hyundai and Kia will invest KRW81 trillion (USD70.1 billion) in new production facilities and new vehicle technologies over the next four years starting from this year (see South Korea: 6 January 2015: Hyundai Motor Group plans investment of USD72.8 bil. through 2018, majority in South Korea). The investment will be routed towards building a new global business headquarters, along with two new Hyundai plants in China and a new Kia facility in Mexico. In addition, Hyundai is separately investing another KRW2 trillion towards boosting its presence in the global commercial vehicle (CV) segment (see South Korea: 16 February 2015: Hyundai to invest USD1.8 bil. to boost presence in global CV market).
H1 review
Despite the ambitious sales growth plans, Hyundai and Kia's sales were under pressure for most of the first-half period, with combined global sales down 2.2% y/y to 3.9 million units (see World: 6 July 2015: Hyundai-Kia's global sales slip 1.7% y/y in June and 2.2% y/y in YTD). Although combined domestic sales remained in positive territory during the period with growth of 3.4% y/y, both brands face an uphill struggle in overseas markets due to a variety of factors, with combined first-half overseas volumes down 2.9% y/y. The situation is worse for Hyundai than Kia; the Hyundai brand's global sales were down 3.2% y/y during the first half because of sluggish performances in the majority of its key overseas markets, including China, where its sales were down 7.7% y/y. As far as Kia is concerned, its total global volumes were almost flat in the first half, down a mild 0.4% y/y, mainly due to a 2.4% y/y decline in overseas sales.
Outlook and implications
Overseas sales remain disappointing for the pair, while Hyundai has come under additional pressure in the domestic market. Hyundai is being hit by unexpectedly slow sales of its new models, including the Grandeur, the Sonata, and the all-new Aslan, which have failed to boost volumes considerably, either at home or abroad. Hyundai launched its latest-generation Tucson model in March, resulting in a sales spike for the automaker in South Korea during June, and it also launched an updated Sonata model with new engine options along with a plug-in hybrid electric version. Kia has refreshed some of its key models, including the K3, the latest K5 (known as the Optima globally), and the Morning (known as the Picanto globally), which were unveiled in early March. As well as these, Kia is receiving support from new models such as the Sportage, the Sorento R, and the Carnival, which were launched in 2014.
A number of factors will play a crucial role in Hyundai and Kia's sales performances in 2015:
- Domestic market performance: Despite maintaining their dominant position in South Korea, both brands have come under pressure in recent times as imported automakers have grown in popularity on the back of favourable business conditions and changing consumer preferences. Hyundai and Kia's combined domestic market share fell below the 70% mark for most of the first-half period and stood at 68% at the end of June, down 2.5 percentage points from the first half of 2014. In stark contrast, imported brands collectively gained more than 2.4 percentage points of market share during the period and controlled about 15% of the South Korean new vehicle market. This compares with less than 2% as recently as 2009 before South Korea signed free-trade agreements with the United States and the European Union. The duo face a crucial third quarter, with both engaging in annual wage negotiations with their respective labour unions. Hyundai's labour union has already revealed its expectations for the year, while Kia is yet to publicise its union's demands (see South Korea: 14 May 2015: Hyundai union demands 7.8% wage increase, wants say in output planning and South Korea: 6 April 2015: Hyundai seeks to overhaul wage system in South Korea which union declines). Both automakers' unions staged strike action at their domestic plants during August–October last year, which reportedly resulted in nearly KRW500 billion of combined lost production.
- Success in export markets: Growth in overseas sales is crucial for both automakers as these sales make up more than 80% of Hyundai-Kia's global volumes. Hyundai and Kia are under pressure from the strengthening South Korean won, which continues to damage their export competitiveness, while at the same time they are facing increased competition from Japanese automakers, which are reaping the benefits of the relatively stable/weak Japanese yen. According to IHS Automotive light-vehicle sales data, Hyundai is likely to perform poorly in most of its key markets this year, including the United States. Some gains are predicted for Hyundai in a few markets in Europe, although these are expected to be offset by poor performances in markets such as Russia, where it is likely to post significant double-digit percentage declines. On the positive side, Hyundai is forecast to perform relatively better in the Chinese market, which is beginning to see a slowdown in overall new vehicle sales. The automaker's performance in China will largely be supported by the steady-selling Elantra Langdong (known as the Avante globally) and the Verna, as well as the new ix25, which was launched just last year. Hyundai is expected to enjoy a bumper performance in India thanks to the popular Grand i10 and Elite i20 models, while it yesterday (21 July) began sales of the all-new Creta in the country (see India: 21 July 2015: Hyundai reveals pricing, launches Creta compact SUV in India). Kia is expected to post steady growth overseas this year, thanks to improving demand on the back of popular new models. The automaker is forecast to perform well in all of its top-selling markets globally, barring some of the European markets such as Russia and the United Kingdom. In its two largest overseas markets – China and the United States – Kia is poised to see significant sales growth thanks to the success of models such as the new K3, the Sorento, and the all-new Optima.
- Investor concerns amid bleak financial outlook: Aside from the pressure to achieve its targeted sales volumes, both Hyundai and Kia are also subject to increasing investor concerns amid falling profits. Hyundai's first-quarter net profits fell by 2.2% y/y and sales revenues were down 3.3% y/y. As far as Kia is concerned, its net profit grew 3.1% y/y during the period, propped up mainly by gains from "other income", although its sales revenues fell by 6.3% y/y. In an effort to appease growing investor concerns, the duo has set up a panel to address shareholders' grievances and to protect their interests, while it is also preparing to offer interim dividends for the first time this year, a move that is expected to be finalised some time this week (see South Korea: 15 June 2015: Hyundai declares interim dividends for first time). Hyundai and Kia are expected to reveal their second-quarter and first-half financial results some time this week.
Against this background, IHS Automotive's latest round of forecasts indicate that Hyundai and Kia's combined global sales will grow by a modest 1.3% y/y in 2015 to 7.54 million units, falling short of their ambitious target of 8.2 million units. Both brands face a fight to secure a competitive position in global markets as the won's rise against other currencies has made their products more expensive. Both brands have consciously moved upmarket into a more premium price position, in what is unfamiliar territory for them. This conscious strategy in mature markets was always going to slow sales growth rates. We expect Hyundai's total sales, including light, medium, and heavy CVs, to come in at 4.68 million units in 2015, representing a slight decline of 0.5% y/y, while Kia's total sales are predicted at 2.86 million units, which would represent growth of 4.3% y/y. The Chinese-only Horki sub-brand is expected to achieve sales of 1,081 units this year.
The top-10 best-selling nameplates during 2015 for the group are expected to be: Hyundai's Avante (861,607 units), Hyundai's Verna (656,544 units), Hyundai's Tucson (516,669 units), Kia's Rio (429,972 units), Hyundai's Sonata (404,636 units), Kia's Sportage (392,701 units), Kia's K3 (375,863 units), Kia's Optima (306,475 units), Hyundai's i10 (300,288 units), and Hyundai's Santa Fe (284,653 units).