(Repeats article first published on Monday. No changes to
* Sales hurt by lack of SUV models, lackluster sedan design
* Hyundai looking to trim costs, expenses
* Preparing first small SUV for advanced markets
* Major shareholder predicts profit pick-up from next year
By Hyunjoo Jin
SEOUL, Dec 26 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
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 Motor Group executives have taken a
10 percent pay cut, the first such move in seven years.
The number of executives at Hyundai Motor alone has
risen by 44 percent 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
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
Other costs, such as low-margin supplier parts and labour at
the heavily-unionised automaker, are tougher to pare back, said
Ko Tae-bong, 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 percent in the
past three years, the worst performer among global automakers.
The automaker's top U.S. 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.
For next year, Hyundai-Kia Executive Vice President and
research head Park Hong-jae, expects sales to pick up again. "It
was a difficult year this year. Things will get better," he told
reporters on Thursday, citing recovery in markets such as Brazil
Another Hyundai source said the group has trimmed its
preliminary 2017 sales target to 8.2 million vehicles, from 8.35
million forecast in mid-year.
While it looks to manage its staff budget, Hyundai is
beefing up its SUV offerings, freshening up its Sonata sedan,
and redirecting exports from slow-demand markets such as the
Middle East to the United States.
In the United States, SUVs accounted for 28 percent of
Hyundai's sales in January-November, up from 23 percent a year
earlier, according to Autodata Corp, but less than half the
At its plant in Montgomery, Alabama, Hyundai has replaced
some Sonata production with its popular Santa Fe SUV.
Next year, Hyundai will look to plug a gap in its SUV
offerings for developed markets by making a sub-compact model -
under the project name "OS" - in South Korea for sale at home,
in the United States and Europe, people inside the company said.
Hyundai makes sub-compact SUVs locally in China, India and
"We need that small SUV in the U.S, much sooner than later,"
Scott Fink, one of Hyundai's biggest U.S. dealers, told Reuters.
In sedans, Hyundai is pushing sales of bigger, higher-margin
models like the Azera, or Grandeur, and its Genesis luxury line.
Its smaller sedans, including the Elantra and Sonata, have lost
ground to rivals like Honda Motor's Civic, which one
Hyundai executive said has "wowing design".
Hyundai is working on a next generation of cars with "a
different flair" to hit the market from 2019, Luc Donckerwolke,
senior vice president for design, told Reuters on the sidelines
of a recent event.
The biggest holder of Hyundai Motor preferred shares, the
Norway-based Skagen Kon-Tiki fund, expects the automaker to get
back on track over the next couple of years, with new SUVs,
recovering emerging market currencies and better plant
Knut Harald Nilsson, the fund's lead portfolio manager,
reckons Hyundai's margins should recover to above 7 percent over
that period, from 6 percent earlier this year, but are unlikely
to return to the 10 percent levels of a few years ago "anytime
(Reporting by Hyunjoo Jin; editing by Tony Munroe and Ian