* Q1 net profit seen down 18 pct to 2 trln won
* Firmer won/weaker yen, output stoppages in S.Korea, recall costs hit earnings
* Hyundai under pressure to increase overseas production capacity
By Hyunjoo Jin
SEOUL, April 25 (Reuters) - Production stoppages in South Korea and the local currency's strength against the yen are likely to drag Hyundai Motor Co's first-quarter profit down, adding to pressure on the South Korean automaker to build more cars abroad.
Hyundai Motor, which combined with its affiliate Kia Motors Corp is the world's fifth-biggest automaker, is expected to report on Thursday net profit down 18 percent to 2 trillion won ($1.79 billion) from a year ago, according to Thomson Reuters I/B/E/S.
This would mark the second consecutive quarterly profit drop by the once-stellar performer, which may also be hurt by possible costs related to recalls of over 1 million vehicles globally.
Hyundai Motor outperformed rivals such as Toyota Motor Corp and General Motors Co during the global economic downturn with its low-cost cars, but it is suffering from the rising South Korean won combined with the weaker Japanese yen and labour troubles in South Korea, which supplies over 40 percent of its vehicles.
A series of production stoppages called by Hyundai's South Korean labour union during weekends in March and April has resulted in lost production worth $850 million. This could spur Hyundai to expand production capacity in the United States and China, analysts said.
"A raft of labour problems at home make it inevitable for Hyundai/Kia to increase overseas production ... Even without labour issues, Hyundai's portion of overseas production is lower than Japanese rivals," said Suh Sung-moon, an auto analyst at Korea Investment & Securities.
Talks between the company and unions that ended on Wednesday failed to produce an agreement.
CREDIT NEGATIVE
Hyundai Motor's labour union again refused to work last weekend, the seventh consecutive weekend stoppage, causing production losses of 48,000 vehicles worth nearly 1 trillion won. The union and the company have failed to agree weekend wages under a new shift system that has eliminated overnight work and reduced working hours.
Wage litigation and a row over temporary workers raise the risk that Hyundai's overall cost of production in South Korea will rise substantially.
Hyundai's South Korean labour union in February joined Kia Motors in filing wage lawsuits, calling on the company to retroactively increase overtime pay for the past three years based on a recalculated ordinary wage.
On Tuesday, Moody's Investors Service said the lawsuits were "credit negative" for Hyundai and Kia because they raised the risk of one-off charges related to additional wages.
Were the companies to lose, they would face additional costs of 1.84 trillion won, according to a report by HSBC. Hyundai's temporary workers are demanding that the company put them on the full-time payroll, which would increase its labour costs and reduce labour flexibility.
Hyundai's earnings are also likely to be eroded by the won's 4.5 percent rise during the first quarter that has reduced its repatriated earnings from abroad, and the weaker yen which benefits Hyundai's Japanese rivals.
"The yen's fall fueled competition, forcing Korean automakers to increase promotional spending to fend off Japanese rivals," said Ryu Yen-hwa, an analyst at Hanmag Securities.
In addition, earnings may be reduced by recall costs that analysts said could reach as much as 100 billion won.
Hyundai and Kia said this month they would recall a combined 1.9 million vehicles in the United States because of problems related to brake lights and airbags. Analysts say the number of cars pulled back could reach 3 million globally.
Hyundai shares have slumped 17 percent this month on a dimmed earnings outlook, while the broader Seoul index has dipped 3.5 percent.