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UPDATE 2-S.Korea Dec car sales down; won to help exports

(Adds GM Daewoo’s further production cut in 7th para)

SEOUL, Jan 2 (Reuters) - Combined sales of South Korean automakers, led by Hyundai Motor 005380.KS, fell 13 percent in December, adding to concerns over the ripples of a spreading global recession on demand for cars.

But Hyundai and its sister firm Kia Motors 000270.KS are better positioned than global rivals such as Toyota Motors Corp 7203.T to deal with the downturn thanks to a weaker won currency and appetite for smaller cars.

The drop in sales came as automakers around the world face their worst business environment in recent memory, caught in a sharp reversal of demand as the financial crisis spread, squeezing credit and denting consumer confidence.

“As the downturn and financial crisis have cut people’s incomes and boosted uncertainties about the future, more people are postponing purchases of durable goods such as cars,” said Song Sang-hoon, an auto analyst at Kyobo Securities.

“Despite weakening sales, global automakers have too much capacity and the industry needs restructuring,” he added.

Many global carmakers, including South Korean companies, have already cut production to cope with the worsening environment.

GM Daewoo Automotive and Technology Co, the South Korean unit of General Motors Corp GM.N, has decided to suspend production of some lines, including one for a mid-sized sedan, due to weakening demand, a company official said Friday.

Some carmakers have sought government help to survive. Last month, the U.S. government agreed to a massive emergency loan package for Detroit’s Big Three automakers to prevent potential bankruptcies.

In Korea, Ssangyong Motor Co 003620.KS and its majority shareholder China's SAIC Motor Corp 600104.SS are seeking support from the South Korean government and banks for Ssangyong.

South Korea’s five auto makers sold a combined 406,060 vehicles in December, compared with 467,105 a year earlier, according to the companies.

Their overseas sales fell 9.8 percent to 319,123 units from a year ago and domestic sales slid 23.2 percent to 86,937.

For a graphic on December sales, click:

here

BETTER POSITIONED

Analysts said global car sales might improve from the second half of this year if various stimulus measures by global economic authorities such as massive interest rate cuts take effect.

“This year, Hyundai and Kia are seen selling as many cars as last year as they can spend more for overseas customers with a weaker won and as more customers are looking for small cars,” said Sohn Sunny, an analyst at KB Investment & Securities.

The won tumbled 40 percent versus the yen JPYKRW=R in 2008, making Korean exports more competitive versus their Japanese rivals.

Reflecting the optimism, shares in Hyundai ended up 5.57 percent at 41,700 won and Kia rose 6.41 percent to 6,970 won, both outperforming a 2.93 percent rise in the wider market .KS11.

In December, Hyundai sold 219,261 vehicles, down 2.4 percent from the previous year, while Kia’s sales rose 3.0 percent to 126,595 units.

Still, some analysts warn it is premature to say whether Hyundai and Kia would be able to improve sales further in 2009, given the grim industry outlook.

On Wednesday, Hyundai’s Vice Chairman Choi Jae-kook was quoted as saying total global car sales were expected to decline to 60 million vehicles this year from an estimated 65 million units in 2008 and 70 million in 2007.

South Korea’s car exports are expected to fall 4.1 percent in 2009 after an estimated 6.3 percent loss in 2008, the Ministry of Knowledge Economy said.

“Sales (of global carmakers) would be a bit better in the second half, but that will be an eased slowdown rather than a recovery,” said Kang Sang-min, an analyst at Tong Yang Securities.

Chung Mong-koo, the chairman of Hyundai Motor Group, expressed concerns over this year’s business conditions.

“The effects of the global economic crisis are expected to worsen this year and Hyundai-Kia Motors faces fierce competition for survival more than ever, as the impact of the global economic slowdown is expected to get worse this year,” Chung told employees during a New Year speech.

The group did not announce a sales target for this year during its New Year ceremony, a rare move, citing uncertainties surrounding the industry. (Additional reporting by Shin Jieun, Graphics by Catherine Travethan; Editing by Jonathan Hopfner and Jean Yoon)

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