Skip to main content

Hyundai Cuts Costs As SUV Market Continues To Boom

Hyundai Motors recently announced that they are reducing internal costs, along with the plan to get up to speed to match the current SUV boom.
Posted: December 27, 2016 - 7:27AM
Author: Dave Ashton

As the company report a decline in profits this year, they have cut the costs of business class flights and family home trips for international employees. They are also cutting on smaller items such as fluorescent lightbulbs and printing in an aim to prepare for upcoming models and redesigns of their current lineup. 'We're trying to address a mismatch between the market trend and our product line-up,' 'That's a longer term plan. For now we're trying to save every penny,' said a Hyundai insider. 'Cutting expenses are stopgap measures, and won't do much to improve its bottom line,' calling them 'symbolic' said Ko Tae-bong, analyst at Hi Investment & Securities.

Hyundai executives have also taken a 10% pay cut, but the cost-cutting doesn't end there with downgraded hotel rooms, the use of video conferencing instead of travel and in other areas such as using low-margin supplier parts and labor, but the company also need to spend more on R+D for the likes of self driving and other emerging technologies to stay up-to-date. Although the company stays cash rich, its costs have risen for five years to 81% as of this year.

Although the company did well in past years with sales of the Sonata and Elantra, being the only major auto manufacturer to increase its sales in the US in 2009 it has struggled recently as the SUV market continues to boom, but it's not all doom and gloom for the company. 'It was a difficult year this year. Things will get better,' said Executive Vice President Park Hong-jae, with markets such as Brazil and Russia taking up the momentum.

Bring on the SUVs
In a bid to take up the slack in the SUV market Hyundai will be upping production of the Santa Fe SUV and producing a subcompact model under the project name of 'OS' available in Europe, South Korea and the US in the near future. SUV's were 28% of the sales for Hyundai from January to November, which was up 23% from the previous year, but that's still half the industry average data reports from Autodata Corp. The company also aim to freshen up its Sonata sedan.

Hyundai seem to have a lot on their plate at the moment with the need to push Kia Motors sales along with high margin models like the Azera, the Grandeur and its luxury line Genesis motors. With the addition of pushing SUV sales, new models in the pipeline and addressing upcoming technologies such as self driving, Hyundai will be an interesting watch in 2017. Don't expect Hyundai to rest on their laurels as Knut Harald Nilsson Norway-based Skagen Kon-Tiki fund manager says margins should recover to above 7% from 6% earlier in the year.

source: Reuters