Strong dollar prompts Korean automakers to sell more cars abroad amid sluggish domestic sales

By Lee Min-hyung

Carmakers here endeavor to boost exports to maximize their profitability from the strengthening dollar against the local currency, in a strategic move to offset falling domestic sales and slowing demand for electric vehicles (EV), according to data and company officials, Thursday.

The export-driven growth strategy appears inevitable for most Korean manufacturers whose overseas sales reliance remains high, as they can generally enhance their returns by improving the price competitiveness of export items in this period of the falling value of the local currency against the dollar.

According to data from Hana Bank, the won-dollar exchange rate fell to around 1,320 won per dollar in mid-March, but rose to close at 1,375.4 won as of Friday.

Carmakers — such as Hyundai Motor, Kia and KG Mobility — said they will take advantage of the favorable macroeconomic environment to defend themselves against the shrinking market demand here and abroad.

“The strengthening dollar, coupled with robust exports result, helps domestic carmakers — such as Hyundai Motor and Kia — to offset their earnings fall triggered by declining domestic car sales and shrinking appetite for EVs,” an official from a local carmaker said. “Korea’s domestic carmakers will have to focus more on enhancing their localization strategy abroad to maximize exports.”

The global car industry is faced with a structural slowdown after enjoying robust growth last year, as was shown by their sales results. Data from five carmakers in Korea — Hyundai Motor, Kia, KG Mobility, Renault Korea, and General Motors (GM) Korea — reveal a combined sales decline of 12.1 percent in the first quarter compared to the previous year.

But the carmakers are widely expected to have minimized their earnings falls during the same period, as exports have displayed solid growth, according to data and market analysts. Data from the Ministry of Trade, Industry and Energy showed the nation’s car exports rose by 2.7 percent between January and March from a year earlier. The figure amounted to $17.5 billion (24 trillion won). This was record first-quarter performance.

“Hyundai Motor and Kia’s first-quarter sales fell by 0.7 percent and 1.5 percent, respectively, from a year earlier, but the carmakers are expected to extend a decent level of earnings performance due largely to their export growth to key markets — such as the United States — and the rise in the won-dollar exchange rate,” Eugene Investment & Securities analyst Lee Jae-il said.

GM Korea is also widely considered the biggest beneficiary for the rising exchange rate and export growth. In March, the company generated its largest monthly overseas sales since December 2013. Its overseas sales soared by 26.3 percent last month from a year earlier, driven by robust sales of its Chevrolet Trax and Trailblazer.

The company said it will keep extending its winning streak by increasing exports for the two strategic SUVs.

“Notably, the Trax Crossover and Trailblazer were ranked first and second in last year’s passenger vehicle exports in Korea,” a spokesman at the company said. “Our export strategy focuses on leveraging manufacturing capabilities for global market prominence. We aim for an annual production of 500,000 vehicles this year.”

KG Mobility, a domestic carmaker along with Hyundai Motor and Kia, is also on track to expand its export volume, thereby improving its earnings performance. According to the firm’s data, it sold 6,000 vehicles abroad in March, up 25.7 percent from the previous year, driven by its two major SUV models — the Torres and Rexton.

“We will garner more efforts to keep increasing our export volume, while at the same time expanding our presence in the home territory,” an official from the company said.

Exports for Renault Korea for the first three months combined fell by 59.8 percent from the same period the previous year, hit by the absence of its new vehicle lineup. But the company aims for a rebound with the planned launch of its Aurora 1 project in the latter half.

The company expects the upcoming hybrid SUV to rev up its sluggish sales and boost exports.

“As demand for hybrid vehicles and SUVs rises amid the falling popularity of SUVs, Renault Korea will be able to regain momentum to expand not just domestic sales, but also exports, after the long-awaited launch of the new vehicle,” an official from the car industry said.