Shrinking Global Sales Hit Kia’s Bottom Line

Kia Motors, like its larger affiliate Hyundai Motor, is on a stormy sea in three of its major markets, which are dragging down vehicles sales, revenue and profit.

The automaker also is under pressure from wage negotiations under way with its workers union, which is asking for the same salary and bonus increase demanded from sister company Hyundai. The Kia union seeks a raise of 154,883 won ($138) in average monthly pay and a bonus based on 30% of 2016 net income.

Kia also presents what seems a tepid program for recovery in declining markets, when it released sales and financial results to investors today.

Strong retail sales declines in China, the U.S. and Europe were the primary culprits in reducing global revenue for the first six months 2.5% to 26.4 trillion won ($23.7 billion). The impact on operating profit from these imbalanced operations was significant, with Kia logging just 787 billion won ($706 million), a drop of 44% from like-2016. Net profit declined 34.8% to 1.16 trillion won ($1.03 billion).

Kia’s retail vehicle sales were off significantly in China, the U.S. and Korea, dragging down total global volume for the first six months 7.6% to 1.36 million units. The weakest was China, where deliveries plunged 41.5% to 166,000 as the government orchestrated a boycott against all Korean products. Sales in the U.S. were down 9.9% to 296,000 in a market that was off 2.1%.

In Korea, sales declined 7.8%, with 254,000 vehicles sold, in a market down 3.6%. However, in Europe, Kia booked a 9.5% increase for the first six months, selling 254,000 vehicles to easily outperform the average market increase of 4.6%.

Kia’s recovery plan for China includes an effort to diversify its portfolio, but many analysts believe it still will be skewed too heavily to sedans, rather than CUVs.

Kia is releasing two new vehicles in September, the Pegasus compact sedan and the K2 subcompact CUV. An upgraded version of the midsize K4 sedan will launch in November.

While automakers usually boast about increasing the size of their dealership networks, Kia is going the other way in China, planning to trim sales points from 736 to 703 in the second half, canceling contracts with 33 underperforming retailers.

Not much can be done to alleviate the consumer boycott of Korean products in China, as the problem exists in the international political sphere. The Chinese government is orchestrating it in order to pressure the Korean government into removing a new U.S. missile system it says upsets the region’s strategic military balance.

However, the Hyundai Motor Group has a task force focusing on the China problems of both Kia and Hyundai. A group spokesmen declines to provide any details about the task force, said to be headed by Hyundai Motor Vice Chairman Chung Eui-sun.

In the U.S., Kia says it will increase promotional activity aimed at reducing high inventories. Kia Motors America also will initiate pre-marketing activities for the near-luxury Stinger sedan, which launches in the third quarter, and the Rio subcompact sedan, which also will roll out in the second half of the year.

For Korea, Kia says only that it will focus on increased promotional activity to rev up sales. The company is launching the new Stonic subcompact CUV, but plans only limited sales in Korea this year, targeted at about 1,500 units monthly. Kia has not disclosed its global sales plan for the Stonic.

However, Kia’s Korean plants will benefit from increased or new export volumes of the Stonic, Niro and Stinger to Europe and other markets.

To boost sales in Europe, the company plans to increase exports of the Niro compact hybrid CUV being produced at its Hwaseong plant in Korea. It also will launch European sales of the Korea-built Stonic, with volume targeted at 70,000 units annually, and in October will launch the Stinger in European markets.