'Provision for Quality Cost Reflected' Hyundai Motor Posts Q3 Loss Turnaround (Update)

Q3 Operating Loss of 313.8 Billion KRW

Hyundai Motor Group's Executive Vice Chairman Chung Euisun was appointed as chairman on the 14th, marking the full-scale launch of the third-generation management system of Hyundai Motor Group. Hyundai Motor Group, including Hyundai Motor and Hyundai Mobis, held an extraordinary board meeting that morning and approved the appointment of the new chairman Chung. Accordingly, Chairman Chung became the undisputed head of the group just 2 years and 1 month after his promotion to Executive Vice Chairman of the group in September 2018, and 7 months after becoming the chairman of Hyundai Motor's board in March this year. The photo shows the Hyundai Motor Group headquarters in Seocho-gu, Seoul on the day. Photo by Kim Hyunmin kimhyun81@

[Asia Economy Reporter Kim Ji-hee] Hyundai Motor Company announced on the 26th that it recorded an operating loss of 313.8 billion KRW in the third quarter of 2020. The provision for quality costs, including compensation expenses related to the Theta engine defect, was reflected in the third-quarter results, making it impossible to avoid a return to a deficit.

Hyundai Motor held a conference call on its third-quarter 2020 business performance at its headquarters in Seoul on the same day and announced that sales reached 997,842 units, revenue was 27.5758 trillion KRW, operating loss was 313.8 billion KRW, ordinary loss was 362.3 billion KRW, and net loss was 188.8 billion KRW (including non-controlling interests).

A Hyundai Motor official stated, “Third-quarter sales showed a recovery trend as global automobile demand improved following the easing of lockdown measures in major countries compared to the second quarter, but still declined compared to the same period last year due to the impact of COVID-19.” He added, “Operating profit turned to a loss as a large provision related to the engine was reflected in the third quarter.” He further explained, “Excluding the relevant quality costs, the third-quarter operating profit significantly exceeded existing market expectations.”

Regarding future plans, the official said, “The fundamental improvement of the company’s structure continues due to the combined effects of mix improvement from strong new car sales, robust sales in key markets such as domestic and the U.S., and company-wide cost reduction efforts.” He added, “Going forward, we plan to focus on profitability improvement by actively promoting the successful launch of major new models such as Tucson and GV70 and measures to normalize sales by region.”

Global market sales in the third quarter recorded 997,842 units, down 9.6% compared to the same period last year. In the domestic market, despite the impact of COVID-19, sales increased by 21.9% to 199,051 units compared to the same period last year due to demand recovery from the extension of the individual consumption tax reduction and strong sales of new models such as GV80, G80, and Avante. On the other hand, overseas sales decreased by 15% year-on-year to 798,791 units as demand declined in all regions except some markets such as China and India.

Revenue recorded 27.5758 trillion KRW, up 2.3% compared to the same period last year. Despite the unfavorable exchange rate environment due to the decline in global wholesale sales and the strong Korean won, revenue increased due to the product mix improvement effect from expanded sales of high value-added vehicles such as SUVs and Genesis, and a decrease in incentives resulting from a profitability-focused sales expansion strategy.

The cost of sales ratio was 81.4%, down 2.2 percentage points year-on-year, as the product mix improvement effect continued despite the decline in factory operating rates due to weak global demand and the strong Korean won. Operating expenses increased by 34.3% year-on-year to 5.4391 trillion KRW due to a large provision related to the engine, despite reductions in marketing expenses and other costs from company-wide cost-saving efforts to overcome an uncertain business environment. As a result, operating profit in the third quarter of this year decreased by 692.3 billion KRW year-on-year, recording an operating loss of 313.8 billion KRW. The operating profit margin also fell by 2.5 percentage points year-on-year to minus 1.1%.

On a cumulative basis through the third quarter, business performance was recorded as sales of 2,605,189 units, revenue of 74.7543 trillion KRW, and operating profit of 1.1403 trillion KRW.

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