More THAAD effect as Hyundai and Kia sales tumble in China

Posted on : 2017-04-05 16:49 KST Modified on : 2019-10-19 20:29 KST
Automakers record significant drop in sales as economic retaliation over THAAD deployment hits manufacturing
Hyundai Motor’s Beijing factory
Hyundai Motor’s Beijing factory

Sales of Hyundai and Kia cars in China plummeted last month among China’s intensifying economic retaliation over South Korea’s THAAD missile defense system deployment.

The entire automotive industry is now on edge as the THAAD conflict begins to spill over from retail into manufacturing.

Hyundai Motor reported on Apr. 4 that it had sold 56,026 automobiles in the Chinese market the previous month, a 44.3% drop from Mar. 2016. Kia Motor reported 16,006 vehicles sold over the same period, down by 68%. Together, the companies sold 72,032 vehicles, with a decrease of 52.2% from the same period last year.

The drop appeared to reflect increasingly vehement public opinion in China as the THAAD deployment site decision and actual deployment gained momentum from late February to early March.

“While there had been speculation that anti-Korean sentiment abated somewhat after the decision on Mar. 10 to impeach Park Geun-hye as president, the actual situation hasn‘t been like that at all,” said a Beijing source.

While there is no official Hyundai-Kia boycott campaign in China, there had been predictions that the automobile sector would suffer.

“It looks like car buyers avoided buying South Korean brands out of concerns about violent acts like the destruction of Japanese cars during the Diaoyu (called Senkaku in Japan) Islands situation in 2012,” said a trade industry source in Beijing.

The website Sohu Auto urged readers to buy Chinese automobiles, noting that six of the top 10 sport utility vehicle (SUV) models sold in China last year were Chinese-made.

“True patriotism means supporting Chinese products, not boycotting South Korean cars. Chinese products are already more cost-effective than South Korean ones,” it said.

Some Volkswagen dealers were reported to be blatantly marketing discounts of 3,000 to 16,000 yuan (US$435-2,320) if customers sold their Hyundai model when buying a new car.

The situation this year has been one of deepening worry for Hyundai Motor, which is about to complete construction of a fifth factory in the Chinese city of Chongqing. The fear is that if the situation keeps up, it may not only have to put off finishing the construction but also cut production at the other factories it operates. Hyundai suspended operation between Mar. 24 and Apr. 4 at its Changzhou factory, which produces 300,000 vehicles per year. While the company explained that it was an “ordinary production line review” and that operation would resume on Apr. 5, industry observers said it had adjusted its production owing to the dropoff in Chinese sales.

Hyundai’s factory in Beijing temporary halted nighttime assembly late last month, while Kia, which operates first, second, and third factories in Yancheng, suspended operation for one week at each.

The Hyundai Group has a total of seven factories in China. Hyundai had been planning to adjust its production and sales network to accelerate its Chinese market strategy once the new Chongqing factory was finished and running around August.

While the Hyundai Group had previously feared spreading anti-Korean sentiment could lead to sales dropping, it also figured China would not do anything that stood to hurt itself. Beijing Hyundai Motor and Dongfeng Yueda Kia are joint ventures, with China sharing a 50 percent stake in each. Hyundai and Kia achieved 1.8 million vehicle sales in China through the two companies - accounting for 23% of their total global sales.

“The THAAD situation is spreading right now, but it‘s also frustrating for us because it’s a political/diplomatic variable that we can‘t control at the level of an individual company,” said a Hyundai Group source.

Other finished car producers are similarly nervous. Ssangyong had been considering entering the Chinese market in 2019 through a joint production corporation with a local business, with Chinese government approval procedures scheduled for this year.

Farm product companies have also been nervous as exports to China decline. A Ministry of Agriculture, Food and Rural Affairs report on March trends in farming, forestry, and livestock product exports noted a 5.6% decline in food exports to China compared to the same month in 2016. Food industry observers have predicted future effects could include reduced sales and a dropoff in the rate of increase.

By Kim Oi-hyun, Beijing correspondent, Hong Dae-seon and Lee Jung-yeon, staff reporters

Please direct questions or comments to [english@hani.co.kr]

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