Kia Motors Q1 Operating Profit 444.5 Billion KRW... "Q2 'Demand Cliff' Begins in Earnest" (Update)

Q1 Revenue of 14.5669 Trillion KRW and Operating Profit of 444.5 Billion KRW

2020 Telluride (Photo by Kia Motors)

[Asia Economy Reporter Kim Ji-hee] Kia Motors recorded an operating profit of 444.5 billion KRW in the first quarter of this year, down 25.2% compared to the same period last year. This was before the full impact of the novel coronavirus disease (COVID-19) took hold, and the decline in performance was mitigated by the effect of new car launches and favorable exchange rates.

Kia announced on the 24th that its first-quarter 2020 business results showed sales of 14.5669 trillion KRW and operating profit of 444.5 billion KRW. While sales increased by 17.1% compared to the same period last year, operating profit decreased by 25.2%. Net profit for the period was 266 billion KRW, down 59% from the previous year.

A Kia official said, "The first quarter was before COVID-19 spread globally, so except for China, factors such as a favorable KRW-USD exchange rate, new car effects centered on domestic and U.S. markets, and product mix improvements were reflected in the results. Since the end of last month, major regional factories have suspended operations and sales, raising concerns about severe business deterioration in the second quarter. We will closely monitor the situation and focus on minimizing sales decline by leading with new car launches.”

Global wholesale sales including China in the first quarter recorded 648,685 units, down 1.9% year-on-year. Domestic sales increased by 1.1% to 116,739 units, while overseas sales decreased by 2.6% to 531,946 units.

By region, sales in China, where COVID-19 spread rapidly from early in the year, dropped 60.7% year-on-year to 32,217 units. The European region also saw a sharp impact from COVID-19 starting in March, with sales falling 10.1% to 117,369 units. Other markets including Russia, Africa, the Middle East, and Latin America recorded 194,272 units, down 2.4% year-on-year.

Domestically, some production disruptions occurred in February due to parts supply issues, but normalization of parts supply followed, sustaining the new car effect from models like the Seltos and the new K5. In the U.S., sales increased led by the large sport utility vehicle (SUV) Telluride. Sales in the North American region rose 8.9% year-on-year to 193,052 units. India also sold 39,677 units, driven by the Seltos and the Carnival launched in February this year.

Sales increased 17.1% year-on-year due to favorable exchange rates, strong domestic new car sales, and improved product mix from expanded sales of leisure vehicles (RVs) such as the Telluride and Seltos in the U.S. The cost of sales ratio rose 2.4 percentage points to 84.5% compared to the previous year, but excluding the one-time reversal of provisions related to the ordinary wage lawsuit recorded in the same period last year, it remained similar to the previous year. Operating profit decreased 25.2% compared to last year, which had a temporary increase due to the ordinary wage reversal. The operating profit margin fell 1.7 percentage points year-on-year to 3.1%.

Kia plans to overcome the crisis by focusing sales capabilities on new cars and flexibly responding to uncertain situations amid difficult business conditions expected this year due to ongoing international trade disputes and the sharp drop in demand caused by the spread of COVID-19. Especially from the second quarter, as the impact of COVID-19 is expected to intensify globally including in China, Europe, the U.S., and India, a deterioration in profitability is seen as inevitable.

In the U.S., Kia will focus on sales of high-profit RV models such as the popular Telluride and Seltos, as well as the upcoming new Sorento, operating special installment purchase programs and providing comprehensive dealer support to minimize sales disruptions. In Europe, where a significant sales decline is expected for the time being, promotional activities using online channels will be strengthened.

In India, where factory operations have been suspended since the end of March, Kia plans to minimize the impact of second-quarter demand decline by timely supplying the popular Seltos after resuming operations. A new entry-level SUV is also scheduled for launch in the third quarter.

Additionally, Kia will continue company-wide cost reduction efforts and proactive investments and research and development to strengthen future competitiveness, including early transition to electric vehicles, autonomous driving, connectivity technologies, and mobility services.

A Kia official said, "From the second quarter, the global spread of COVID-19 is expected to fully impact, raising concerns about a demand cliff. Although the business environment is more challenging than ever, we will do our best to overcome the crisis by focusing on untact marketing activities and competitive new car sales.”

This content was produced with the assistance of AI translation services.