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| Hyundai Motor Group Chairman Chung Euisun addresses customer satisfaction during the automotive conglomerate's New Year greeting ceremony at its headquarters in Seoul, Jan. 2. Courtesy of Hyundai Motor Group |
By Nam Hyun-woo
Hyundai Motor Group is making efforts to place quality at the center of its business principles, taking a 3.36 trillion won ($2.95 billion) "big bath" in its third-quarter earnings to address its engine issues.
Though the plan will affect the automotive group's share prices, the decision by newly appointed group Chairman Chung Euisun is interpreted as his intention to wrap up long-term issues on internal combustion engines properly, before moving on to the new businesses of electric vehicles (EVs) and other eco-friendly vehicles.
According to the Korea Exchange, shares of the group's two carmakers ― Hyundai Motor and Kia Motors ― both closed nearly flat after showing a weak start during Tuesday trading. Hyundai Motor declined 0.3 percent and Kia Motors gained 0.32 percent from a day earlier.
This came after the group announced that Hyundai Motor and Kia Motors will each set 2.1 trillion won and 1.26 trillion won for provisions to address engine issues, and the amounts will be taken into their respective third-quarter earnings as losses.
The engines include the Theta II, Gamma and Nu models. Of them, the Theta II GDi engine was involved in large-scale recalls in the U.S. and Korea in 2015 and 2017, after it caused knocking, noise and power loss.
Both Hyundai and Kia have already set up provisions for the Theta II GDi engine twice in 2018 and 2019. However, the group set an additional provision, as it decided last year to offer a lifetime warranty on the engine and readjusted the average age of vehicles with Theta II engines.
Before the announcement, Hyundai Motor and Kia Motors were forecast to report operating profits of 1.1 trillion won and 620 billion won in the third quarter. Hana Financial Investment analyst Song Sun-jae anticipates that now they will swing to operating losses of 800 billion won and 540 billion won in the quarter, respectively, when the provisions are reflected.
Hyundai officials said Chung will drive group-wide efforts in terms of pursuing quality-driven growth rather than seeking expansion, as the chairman is leaning toward improving the group's reputation on product quality before entering a new phase.
In his speech as newly appointed chairman Oct. 14, Chung reiterated the importance of product quality, saying "all of our goals must be customer-centric" and "the first step to customer happiness is to enable them to focus on their own lives through the perfect quality of our products and services."
Like other carmakers, Hyundai Motor brands have been dogged by issues involving the quality of its engines. "This is seen as the last big hurdle before Chung kick-starts his leadership," eBest Investment & Securities analyst Lee Jae-il said. "The group's new vehicles are already equipped with different engines and an EV-centric production cycle will start at Hyundai Motor Group next year. This shows the importance of the Theta II engine has been marginalized."
Hyundai Motor Group initially planned to hold a showcasing event for its new EV platform, dubbed E-GMP, later this week, but postponed it. Based on the E-GMP, the group plans to roll out the Ioniq EV series next year, and seeks to sell 1 million EVs by 2025.
