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How South Korea’s missile defense may be hurting Hyundai

Yoon Yeo-Chul, vice chairman of Hyundai Motor Co., speaks at company meeting in Seoul on Tuesday. (SeongJoon Cho/Bloomberg News)

If social media is any indication, much of the world has been hoping to put 2017 — with its endless political and social drama — in the rearview mirror.

Hyundai Motor Co. — which along with its affiliate Kia Motor Corp. represents the world’s fifth-largest automaker — is probably no exception, having limped to the 2017 finish line with sagging sales for the third year in a row, according to Bloomberg.

The South Korean automaker sold 7.25 million vehicles last year, falling 1 million short of the company’s goal, the news service reported.

Hyundai did not respond to repeated requests for comment.

“The market environment is expected to be difficult due to a slowdown in major markets like the U.S. and China, prolonged low growth in the global economy and trade protectionism in major countries,” Hyundai said in a statement Tuesday to Reuters.

For the past year, consumers — bolstered by low fuel prices and a desire for spaciousness — have again been opting for SUVs, a category in which Hyundai vehicles are something of an afterthought, experts say. If adverse consumer purchasing trends weren’t a big-enough challenge, Hyundai also found itself in the middle of an ongoing geopolitical crisis last year, one marked by a lack of clear solutions.

That crisis stemmed from the U.S. Terminal High Altitude Area Defense (THAAD), a controversial antimissile system installed by South Korea to protect the country against possible North Korean attacks. That system sparked the ire of the Chinese government, which retaliated economically by unleashing a boycott against South Korean films, tourism and products, including automobiles, experts say. Chinese officials claim the system includes powerful radar that can peer into Chinese territory, undermining the country’s security.

Hyundai was already experiencing decreasing sales in China when the boycott took effect, according to Troy Stangarone, senior director of congressional affairs and trade at the Korea Economic Institute of America.

Stangarone said that Hyundai sales dropped by about 50 percent, from around 100,000 cars to half that number, between March 2016 and March 2017, before continuing to decrease in April. At the same time, he noted, Chinese tourism to South Korea dried up as well, the result of pressure from government officials on the industry.

“You get this sharp drop right at the same time as the controversy is erupting with THAAD,” he said, referring to a sharp decline in sales in April, May and June. “Clearly, there was something going on in which the Chinese government was trying to impact auto sales.”

But controversy surrounding THAAD isn’t entirely to blame for lagging sales, Stangarone said. In recent years, more Chinese drivers have begun purchasing SUVs, a trend that has negatively affected Hyundai in Asia and the United States.

The problem is not that Hyundai doesn’t make SUVs, according to Rebecca Lindland, an executive analyst at Kelley Blue Book, but that consumers don’t associate the company with them. Instead, she said, the company — which won over consumers with generous warranties and reliable vehicles — is known as a “value brand.”

“The perception among consumers is that Hyundai is still known for good value but relatively inexpensive value,” Lindland said. “Getting on that consideration list for a vehicle that is generally more expensive than the typical sedan is really, really tough. The marketplace is crowded.”

There is hope on the horizon, analysts say, with Hyundai announcing plans in recent months “to debut eight new or re-engineered crossover utility vehicles (CUVs) in the United States by the year 2020.”

For the time being, company officials acknowledge, the struggle will continue.

Hyundai and Kia predict a 4.1 percent increase in sales growth to 7.55 million vehicles for 2018, Reuters reported.


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