* 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
By Hyunjoo Jin
SEOUL, April 25 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
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.
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.