Hyundai Reaps Benefits of Slow Japanese Production, Increases Profits in Q2

Japanese automakers continue their slow recovery from the earthquake and tsunami that devastated the country earlier this year, facing supply shortages and limited production capacity. One automaker that benefited from the absence of Japanese competition was Hyundai, which saw a 37-percent second-quarter profit surge over the same period last year, according to Bloomberg. In the three months since the March earthquake, Hyundai’s net income was 2.3 trillion won ($2.2 billion), a significant increase from last year’s 1.68 trillion.

Hyundai’s small car offerings, including the Elantra and Accent, led sales, which rose by 19 percent in the first half of the year compared with the first half of 2010. With Toyota’s global production dropping 9.2 percent in June, and Honda’s dropping nearly 45 percent, Hyundai took advantage of Japan’s hindered supply chain and boosted production at its own overseas plants.

That move also helped the company sidestep profit losses in its home country, which would have resulted from the rising strength of the won. Now the second best-performing Asian currency in 2011, the South Korean won increased its value by 6.5 percent this year. According to Hyundai’s Chief Financial Officer, Won-Hee Lee, a strong won is a concern for the company, as it means the automaker takes home fewer profits from exports to foreign markets.

For the time being though, Hyundai is enjoying the lack of competition from its Far East neighbors. But the plant shutdowns and supply shortages can’t last forever, and sooner or later Hyundai will have to contend with Toyota’s all-new 2012 Camry. The Korean manufacturer plans to deal with the upcoming threat by introducing new models later this year, but the returning mid-size champ will likely still eat into Hyundai’s profits a fair amount. Lee also sees profits shrinking on its home turf In the future, thanks to a free-trade agreement with the European Union that makes it easier for western automakers to import cars into South Korea.

Source: Bloomberg

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