No takers: Hyundai cars sit in US ports as virus keeps buyers away

Women wearing masks to prevent contracting the coronavirus disease take a look at a Hyundai Motor’s vehicle at Hyundai Motor Studio in Goyang, South Korea. REUTERS

As Detroit’s automakers shut production in March due to the coronavirus pandemic, South Korea’s Hyundai Motor cranked up its factories back home to ship cars to the United States, a move that is proving costly for the world’s fifth-largest auto group.

Hyundai ramped up domestic production to as much as 98 percent of capacity by late March, not only as the Korean market was recovering from a bad February but also because it bet on demand for Tucson SUVs and other models from US customers, its biggest overseas market outside of China.

Hyundai shipped 33,990 vehicles to the United States in March, or 4.3 percent more from a year ago, according to company data.

While Hyundai is one of few global automakers whose production has recovered at home, its exports optimism has been dampened by the severity of the US outbreak, weak consumer sentiment that battered the industry, and as rivals have quickly moved to guard their turf.

Consignments of cars shipped from South Korea are now sitting in US ports, with dealers slow to take deliveries because of slumping sales and rising inventory, four people with knowledge of the matter told Reuters.

Reuters could not independently verify how many vehicles shipped by Hyundai and other auto makers are held in US ports.

The company idled a Tucson production line at home last week for five days. And analysts now expect a sharp drop in first-quarter operating profit when it reports results on Thursday and some even forecast a second-quarter loss.

“I hope that the situation will recover by the middle of next month. If not, we might have to lay off some people,” said Brad Cannon, general manager of an exclusive Hyundai dealership in California, whose sales are down more than 50 percent from when the pandemic started.

Visitors wearing masks to prevent contracting the coronavirus disease take a look at a Hyundai Motor’s vehicle at Hyundai Motor Studio in Goyang, South Korea. REUTERS

Hyundai runs a factory in Alabama — which is closed until May 1 — but imports are key to meet US demand. Only about half of its vehicles sold in the United States are made in North America compared to between 68 percent and 85 percent for Japanese rivals Toyota Motor, Nissan Motor and Honda Motor, who have also suspended production there till May.

Hyundai’s South Korean factory operation, which had recovered from a component shortage from China to nearly 100 percent capacity by March, could fall to as much as 70 percent in April, the company recently told analysts.

“Hyundai Motor has been maintaining strong cooperative relationship with our dealers around the world and we will overcome this difficult time by further enhancing collaboration with our dealers,” it said in an emailed statement to Reuters.

“We will work to maintain the optimal level of inventory at each step of the supply chain… aiming for a faster recovery than others when the crisis softens.”

For its part, Hyundai has taken measures to minimize the impact.

In March, Hyundai was first in the market to relaunch a job-loss protection programme introduced during the 2008-09 global financial crisis in the US market, offering to cover up to six months of payments for car buyers if they lose their job due to COVID-19 this year.

It has also revamped its model lineup, in a move reminiscent of the car maker’s success in 2009 when Hyundai was the only major automaker to post increases in US sales through a revamp of the portfolio and aggressive marketing campaigns.

But rivals, which were in turmoil a decade ago, are not standing still this time around. Detroit’s big three — General Motors, Ford, and Fiat Chrysler — have been quicker than Hyundai in launching attractive financial offers, propelling them to their biggest combined market share since 2006 in late March-early April, according to researcher J.D. Power.

“I think the market has changed… I don’t think it will be like 2008. The other makers may be not as aggressive, but pretty much right there,” Scott Fink, the operator of Hyundai’s biggest US dealer, said. He expects his dealership to post a 40 percent sales drop in April compared with an 18 percent decline in March.

While not optimistic about a quick market recovery, Fink said Hyundai would be still able to resume sales and market share growth, driven by new products like the Palisade SUV.

An employee wearing a mask to prevent contracting the coronavirus disease wipes the exterior of a Hyundai Motor’s vehicle at Hyundai Motor Studio in Goyang, South Korea. REUTERS

Still, demand recovery at home, Hyundai’s biggest market, is expected to cushion the blow from the slump overseas, with South Korea’s new COVID-19 cases dropping to nine on April 21 from a peak of 909 on Feb. 29, without drastic measures such as lockdowns.

Hyundai’s domestic sales in March hit their highest level in more than four years, up 80 percent from February, helped by a consumption tax cut. Hyundai also said local pre-orders for new models like the Elantra and Genesis G80 are strong.

On Saturday, a Hyundai Motor dealership on the outskirts of Seoul was busy, with a steady stream of mask-wearing customers going in and out.

“Customer traffic has fully recovered to the pre-virus level,” said Lee Taek-san, the store’s general manager, adding some 40 groups are now visiting the showroom on a holiday, from 10 in early March. “It is a relief,” he said. (REUTERS)

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