At Kia, sales go up, but profit doesn’t follow
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Kia Motors’ sales expanded last year, but profits faltered. Korea’s second-largest carmaker by sales said Friday it posted 94.3 billion won ($84 million) in net profit for the fourth quarter last year, a 10 percent drop year on year.
Though the carmaker’s revenue in the fourth quarter increased by 3.6 percent to 13.47 trillion won due to increased sales, the company said the Korean won’s strength against the U.S. dollar dragged down profits.
A similar trend is evident in the company’s annual earnings report. The company posted 54.17 trillion won in revenue for the whole of last year, a 1.2 percent increase from the previous year. Global sales also increased by 2.4 percent during the year, selling more than 2.8 million units.
Despite expanded sales, the company’s net profit was limited to 1.16 trillion won, a 19.4 percent jump from 2017, but still below market expectations or the company’s average profit recorded between 2014 and 2016.
Profit in 2017 fell to below a trillion won due to a one-off cost of around a trillion won that was reflected that year after a local court ordered the company to make an overdue payment to employees.
The goal this year for Hyundai Motor’s sister company is to ramp up profitability, especially in the U.S. and Chinese markets, with new car launches and stronger SUV lineups. The automaker also plans to tackle emerging markets like Russia and India with localized models.
“China is the most difficult market for Kia”
Kia is betting big on its Telluride SUV to turn its business around in the U.S. market. The largest SUV yet in Kia’s lineup will launch in the United States during the first half of this year.
“As we launch new cars in the U.S. market including the Telluride SUV and new Soul crossover and diversify our product mix, we expect our profitability to improve,” said Joo Woo-jeong, chief financial officer at Kia, during a conference call with analysts on Friday. “The Telluride SUV was well received at the Detroit Motor Show and its image as an off-roader fits well with demands in the U.S. market.”
The SUV was recently introduced during the North American International Auto Show in Detroit.
For China, Joo said Kia will strengthen its local dealer network and better manage car inventories there to improve business. The company is also planning on launching dedicated SUV models for the Chinese market. While Kia sold 370,000 cars in China last year, it hopes to sell 410,000 cars this year based on the new strategies.
Joo admitted that “China is the most difficult market for Kia” at the moment. Kia plans to sell a total of 2.92 million cars this year, a 3.9 percent increase from last year.
Questions & Answers
Q.What is the main reason Kia's profit decreased in the fourth quarter despite increased revenue?
What is the main reason Kia's profit decreased in the fourth quarter despite increased revenue?
The company stated that the Korean won’s strength against the U.S. Dollar negatively affected profits. This trend was also reflected in their annual earnings report for the whole year.
Q.How did last year's net profit compare to the company's performance in previous years?
How did last year's net profit compare to the company's performance in previous years?
Last year's net profit of 1.16 trillion won, despite being a 19.4% jump from 2017, was still below market expectations. It was also less than the average profit recorded between 2014 and 2016.
Q.What strategies will Kia use to improve profitability in the U.S. Market this year?
What strategies will Kia use to improve profitability in the U.S. Market this year?
Kia plans to launch new cars, including the Telluride SUV and new Soul crossover, and diversify its product mix. The Telluride SUV is expected to be a key driver for turning around business.
Q.What are Kia's goals for the Chinese market this year, and what challenges does it face?
What are Kia's goals for the Chinese market this year, and what challenges does it face?
Kia aims to sell 410,000 cars in China this year, up from 370,000 last year. They will strengthen the dealer network and manage inventories, though the CFO admitted China is currently the most difficult market.
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