By Nam Hyun-woo
|Mando CEO Chung Mong-won|
They said Mando's efforts to cut the payroll will bring a short-term drop in fixed costs, but this will certainly not be a fundamental solution unless the ongoing trade conflict between the U.S. and China eases and auto sales pick up in the mainland.
According to Mando's earnings report, it logged 51.78 billion won ($42.8 million) in operating profit for the second quarter, down 21.9 percent from a year earlier. In a half-year comparison, the company's operating profit has declined to 83.87 billion won from 109.65 billion won a year earlier.
Due to the slowdown, the company has been slashing jobs, especially executive posts. The earnings report showed Mando had 72 executives at the end of June, down 20 percent from 90 in the first quarter.
This came after Mando CEO Chung Mong-won announced a plan to restructure the company, saying the company is "facing a stern crisis" and it cannot "guarantee growth this year."
Following the announcement, the company has been receiving applications for voluntary resignations from employees. In China, the company has already cut the payroll by 15 percent in the first quarter of this year.
Analysts said the company's slowdown is largely attributable to the slump of Mando China Holdings, which logged a 10.86 billion won net loss in the first half of this year. The Chinese body's sales accounted for 20.7 percent in the company's total sales, making China the company's second largest revenue source following Korea.
"Carmakers in China contained the delivery of new cars to reduce inventories," KB Securities analyst Kang Seong-jin said. "Especially, the delivery of Mando's core clients, Hyundai Motor Group and Geely Group, declined by 31.6 percent and 22.6 percent year-on-year, respectively."
Of them, Hyundai Motor Group's weakened sales in China played a crucial role. In the first half of this year, Hyundai Motor sold 272,212 vehicles in China, down 28.3 percent from a year earlier. Kia Motors' China sales also dropped by 12 percent to 151,850 during the same period.
Of Mando's total sales, those to Hyundai Motor Group accounted for 58 percent of its total revenue last year, up from 56 percent in 2017.
"As the U.S.-China trade conflict gets prolonged and the Chinese government's pump-priming policy is delayed, a slowdown in demand continues in the market," Hyundai Motor Securities analyst Chang Moon-su said. "Though there is a hope the policy will be implemented, it is uncertain whether the demand for Mando will recover."