Hyundai Hogs the U.S. Automotive Road

by Jim Woods | August 29, 2012 9:37 am

I can remember back in the late-1980s when driving a Hyundai was the epitome of un-cool. Well, things have certainly changed since then. Now, Hyundai’s are known for their style, quality, and affordability — and even for being, dare I say it, “cool.”

This is a development not lost on U.S. auto giants Ford (NYSE:F[1]) and General Motors (NYSE:GM[2]), or on the Japanese automakers Honda (NYSE:HMC[3]) and Toyota (NYSE:TM[4]). Even German behemoth Volkswagen AG (PINK:VLKAY[5]) is likely watching Hyundai’s remarkable progress, and well it should.

Through the first half of 2012, Hyundai Group’s U.S. market share — which includes Kia-brand vehicles — held steady vs. the prior year’s six months. The company captured 8.87% of the market midway through 2012, down slightly from the 8.97% it garnered through the first six months of 2011. By comparison, the much larger Ford and GM saw their respective market share fall[6] in the first half of the year, with Ford’s share sliding 1.21% to 15.68%, and GM’s share declining 1.83% to 18.09%. Hyundai also bested rival Nissan (PINK:NSANY[7]) in market share, as well as Volkswagen.

Earlier this year, John Krafcik, chief executive officer of Hyundai Motor America, announced that the company aims to increase its U.S. sales to 700,000 cars and sport-utility vehicles this year, which is a roughly 8% increase over the prior year. The only thing holding Hyundai back is the fact that its production facilities at the time were already running near full capacity. And while the company is reportedly contemplating adding more production facilities, a decline in demand from buyers in Europe has allowed Hyundai to ship some inventory originally intended for Europe back to the U.S.

To be certain, things haven’t been all roses for Hyundai, especially recently. The company’s exports stalled in July, down some 23% because of a labor dispute that has crippled production. According to the company, the total number of Hyundai and Kia vehicles made in July sank to 120,493, a big drop from the 156,200 units made in the previous month.

Here’s the money quote from the Hyundai statement[8] as reported by the Wall Street Journal: “U.S. dealerships for Hyundai and Kia had some difficulty meeting soaring demand due to a shortage of vehicles.” Moreover, the company said it had less than a month of inventory remaining as of Aug. 1. That’s well below the optimal inventory levels of 60 days.

The supply constraints caused by the strike in South Korean production facilities will likely take its toll on Hyundai and Kia sales, but whatever sales disruption takes place, it will likely be a mere bump in the road for the company. Once Hyundai settles the disputes and gets back on track with full production, the race with U.S., Japanese and German automakers will resume.

The long-term implications of Hyundai’s drive into the lead pack of top-selling automakers in the U.S. sales means an increasingly competitive marketplace for the likes of Ford and GM. It also means that to stay competitive, these companies likely will have to offer more discounts on more models, which will take an increasing bite out of profit margins.

To combat the loss of U.S. market share, Ford and particularly GM will have to search for market share outside the states. The only problem is that Europe is mired in recession, and the other big market, China, is having its own struggles with economic growth[9].

To be certain, the U.S. auto market is where it’s at for car makers, and any company making gains here at home is liable to cause an uncomfortable stir for those currently in the top spot. So, if you’re an investor in U.S. auto stocks, you better keep your eyes on the rearview mirror — because Hyundai is catching up.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

  1. F:
  2. GM:
  3. HMC:
  4. TM:
  5. VLKAY:
  6. Ford and GM saw their respective market share fall:
  7. NSANY:
  8. money quote from the Hyundai statement:
  9. its own struggles with economic growth:

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