Hyundai slashes perks, costs
SEOUL: Headed for a fourth straight annual profit decline, Hyundai Motor is trimming its cost fat; scaling back on business class flights and annual family home trips for overseas employees, executives told Reuters.
The South Korean automaker has been hit by its exposure to weak emerging markets, and a product line-up that features more sedans than sport utility vehicles, just as SUVs have become more popular across many global markets.
The belt-tightening — which also includes cutting back on printing and fluorescent light bulbs — aims to buy Hyundai time to prepare new models and a design revamp.
“We’re trying to address a mismatch between the market trend and our product line-up,” said one Hyundai insider, referring to a need for more SUV models. “That’s a longer term plan. For now we’re trying to save every penny,” he said, declining to be identified because the plans are not public.
Since October, Hyundai Mo- tor Group executives have taken a 10 per cent pay cut, the first such move in seven years. The number of executives at Hyundai Motor alone has risen by 44 per cent in five years, to 293 last year.
The group has also downgraded hotel rooms for executive travel, and is encouraging video conferencing as a cheaper alternative to travel, insiders said.
“We’re in emergency management mode,” said another insider, who didn’t want to be named as he is not authorised to speak to the media. In a response to Reuters for this article, Hyundai Motor said it is “making various cost-saving efforts”, with shrinking global demand and growing business uncertainty, but did not elaborate.
Other costs, such as low-margin supplier parts and labour at the heavily-unionised automaker, are tougher to pare back, said Ko Taebong, analyst at Hi Investment & Securities, noting Hyundai needs also to spend more on research and development in self-driving and other new technologies.
While Hyundai remains cash- rich, its costs as a proportion of revenue have risen for five straight years, to 81 percent so far this year, regulatory filings show.
“Cutting expenses are stopgap measures, and won’t do much to improve its bottom line,” Ko said, calling them more “symbolic”.
Hyundai grew quickly after the global financial crisis, with brisk sales of its Sonata and Elantra sedans. It was the only major automaker to increase sales in the United States in 2009.
But it has struggled to maintain that momentum as rivals’ sales of SUVs have boomed and emerging market economies have weakened. Hyundai Motor shares have fallen 40 per cent in the past three years, the worst performer among global automakers. The automaker’s top US executive has resigned, and the South Korea sales chief and China head have been replaced.
Sales of Hyundai cars, and those of its affiliate Kia Motors , could drop to 8 million this year, a first decline since Hyundai bought its smaller domestic rival in 1998, said Ko, the analyst.