SUVs help Hyundai Motor Co. increase its operating profit

Increased demand for Sports Utility Vehicles such as the Palisade and decreasing incentive spending in the United States of America has led to an increase in the operating profits of Hyundai Motor Co.

By: | Updated: April 25, 2019 12:26 PM

For the first time in the last six quarters, Hyundai Motor Co. has managed to increase its operating cost thanks to a surge in demand for Sports Utility Vehicles. The South Korean automaker's recent introduction, its flagship offering, the Palisade has been at the centre of the action. In addition to this, decreased incentive spending in the US has also helped the cause. First quarter operating profits for the carmaker jumped to 824.9 billion won ($718 million), compared with the average analyst estimate of 777.3 billion won.

Euisun Chung, Hyundai's chairman-in-waiting is trying to convince investors that his planned push towards the introduction of new models which also includes electric vehicles is going to be a win-win strategy for the company in the long-run. The carmaker's entire SUV line-up which consists of sub-compact vehicles, as well as full-sized models, has now started to make their way to markets worldwide this year. This comes after continuous requests made by the shareholders to the company to reduce its dependence on sedans.

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Hyundai's latest offering in the Sports Utility space, the Palisade has witnessed strong demand in the South Korean market. The carmaker plans to launch the same in the US sometime during the third quarter of this year. When launched, the Palisade is going to compete against the likes of Ford Explorer and the Toyota Highlander. In the Chinese market, with its old plant shutting down, Hyundai is under pressure to restructure its operations in accordance with strict environmental regulations and low profitability. Beijing Hyundai’s first-quarter auto sales fell by 18% to the lowest level since 2009, hit by slumping demand in the world’s largest auto market.

Shares of Hyundai rose 1.8% to 138,500 won in Seoul. The stock has gained 17% this year.

Hyundai is working towards improving its profitability this year, with new models including a compact SUV and a luxury Genesis SUV set to be introduced in 2019. With Palisade demand exceeding expectations in South Korea, Hyundai is considering expanding production as it prepares to start exporting the model to the U.S. Regarding U.S. authorities’ ongoing probes on Theta engines, Hyundai Senior Vice President Koo Zayong said it’s difficult to estimate when the investigation will end, adding costs related to quality issues could continue to rise due to tougher regulations.

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