Depressed Auto Industry... COVID-19 Crisis Expected to Intensify from 2Q

Ford Also Turns to Q1 Loss... Global Sales Down 21%
Domestic Hyundai and Kia Face Gloomy Outlook Due to Weakened Demand Worldwide

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] From the second quarter, the impact of the novel coronavirus disease (COVID-19) is expected to directly affect the automobile industry. Concerns about performance slowdowns are emerging not only for domestic Hyundai and Kia Motors but also for the American company Ford.

According to NH Investment & Securities on the 1st, Ford reported sales of $34.3 billion (approximately 41.81 trillion KRW) and an operating loss of $630 million in the first quarter of this year. Compared to the same period last year, sales decreased by 14.9%, and operating profit turned into a loss. Global sales volume also dropped by 21% to 1.13 million units compared to the previous year. The business environment deteriorated across all global regions due to the impact of COVID-19.

Researcher Suhong Cho of NH Investment & Securities explained, "The automobile business recorded operating losses in all regions except North America," and added, "Ford Credit, a subsidiary, also performed poorly, barely breaking even." The outlook for the second quarter is even gloomier. Due to the closure of North American plants, the operating loss in the second quarter is expected to exceed $5 billion. This contrasts sharply with the operating profit of $1.65 billion recorded in the second quarter of last year.

The situation is similar in the domestic automobile industry. Hyundai Motor Company announced on the 23rd of last month that it achieved sales of 25.3194 trillion KRW (19.5547 trillion KRW from automobiles, 5.7647 trillion KRW from finance and others) and an operating profit of 863.8 billion KRW in the first quarter of this year. Both sales and operating profit increased by 45.6% and 4.7%, respectively, compared to the same period last year. These figures exceeded market consensus estimates of 23.2212 trillion KRW in sales and 714.7 billion KRW in operating profit, appearing to be solid results at first glance. However, this growth was due to exchange rate increases. The won-dollar exchange rate in the first quarter was 1,193 KRW, about 70 KRW higher than 1,125 KRW in the first quarter of last year. Since Hyundai is estimated to gain 120 billion KRW in sales for every 10 KRW increase in the won-dollar exchange rate, more than half of the 1.3323 trillion KRW increase in sales compared to last year is attributed to the exchange rate.

Therefore, since overseas plants have been directly hit by COVID-19 since mid-March, it is expected that significant performance setbacks will occur from the second quarter. Demand in China, which was expected to increase this year, also dropped sharply from the beginning of the year, and as COVID-19 spread worldwide, demand decreased in the United States, Europe, India, and other regions.

Kia Motors is in a similar situation. It recorded sales of 14.57 trillion KRW and an operating profit of 444.5 billion KRW in the first quarter. Compared to the same period last year, sales decreased by 17.1% and operating profit by 25.2%. Although it exceeded market expectations of 13.837 trillion KRW in sales and 365 billion KRW in operating profit and was considered to have performed relatively well, the outlook for the second quarter is not bright. The demand contraction that appeared from the first quarter is expected to intensify from the second quarter. Demand has already plummeted in China and Europe, with sales recorded at 32,200 and 117,400 units, down 60.7% and 10.1% respectively compared to the first quarter of last year.

Researcher Cho said, "Although the global lockdowns will be gradually lifted, it is judged that it will take time for global automobile demand to recover to normal levels," and explained, "Considering that global automobile companies, including Ford, are making every effort to secure liquidity, it seems difficult for the global automobile industry restructuring to be completed in a short period."

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