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Hyundai Missed Third-Quarter Profit Expectations Due To Quality Issues

Hyundai Missed Third-Quarter Profit Expectations Due To Quality Issues
Costs towards booking charges for addressing the potentially costs of engine defects in the United States and its home market impacted the earnings of the South Korean auto giant Hyundai Motor for the third quarter forcing the company to miss analysts estimates by a significant amount.
The results also threw up questions about quality issues of its cars which have been lingering for some time now. In 2016, a whistleblower claimed that more cars should have been recalled over the issue of engines catching fire by Hyundai and affiliate Kia Motors. Such revelation had forced Hyundai and affiliate Kia Motors to initiate investigations over the issue.
The efforts of the company to stage a turnaround and stem six straight years of declining profits have been clouded by the lingering quality related issues. The company is also facing the challenge of spending more on tech development to catch up with its rivals in the industry for development of electric and autonomous vehicles. An announcement of an investment of $1.6 billion for a joint venture for the development of self driving technologies was made last month by the company.
The company reported a 59 per cent year on year increase in its third-quarter net profit at 427 billion won ($364.75 million) against the expectations by analysts of a a net profit of 684 billion won according to a survey of economists conducted by /B/E/S Refinitiv. In the same quarter a year ago, Hyundai reported a profit of 269 billion won when the company had to take a big charge related to costs for issues related to its engine and airbag quality.
The company had earmarked another 600 billion won for the purpose of offer lifetime warranties for faulty engines, installations of software for detection of potential engine failures and for settlement of some of the engine-related cases in the United States, Hyundai Motor has said earlier. In the third quarter, there was a drop of 3 per cent year on year in the total retail sales of the company. The gains in sale made in its US market were offset by steep drop in sale in its key markets of China and South Korea.
Sale revenues in the US turned out favorable for Hyundai because of a favorable South Korean currency and demand for the company’s sport utility vehicles. However in China, sales dipped in line with the slowdown in the entire sector in the country even as Hyundai closed down one of its production units in Beijing.
A new proposal for revamping of the ownership structure of parent Hyundai Motor Group is being planned by Hyundai heir Euisun Chung as a part of his succession plan. Last year, the company was forced to shelve a similar restructuring plan following stiff resistance from its US based hedge fund Elliott.

Christopher J. Mitchell

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