Popularity Of SUVs Is Good For U.S. Auto Industry, But Bad For Hyundai

Mon, Jan 2, 2017 1,130

The automotive industry as a whole had another relatively strong year in 2016, but there was one manufacturer who didn’t: Hyundai.

Hyundai’s annual profits fell for the fourth consecutive year in 2016, forcing the company to cut costs by cutting back on business class flights for employees, annual trips home for overseas personnel and even fluorescent light bulbs, Reuters reports. Additionally, all Hyundai Motor Group — Hyundai, Kia and Genesis — executives have taken a 10 percent pay cut since October, marking the first time in seven years the company has had to make such cuts.

The Korean manufacturer’s recent struggles aren’t that surprising, though.

Toward the beginning of the new millennia, Hyundai positioned itself for success by improving the quality of its products, offering fuel-efficient low-cost vehicles and introducing its Hyundai Assurance program, which allows customers to return their car if they lose their job, according to The Wharton School at the University of Pennsylvania.

As a result, in 2009 — one year after the collapse of the U.S. housing market — Hyundai was the only manufacturer to increase its year-over-year sales, via Reuters. Now, however, those strategic decisions have left Hyundai scrambling to adjust to consumers’ rapidly changing preferences.

“We’re trying to address a mismatch between the market trend and our product line-up,” a Hyundai insider told Reuters. “That’s a longer term plan. For now we’re trying to save every penny.”

Through the first 11 months of 2016, sales of cars through the first 11 months of 2016 were down 8.4 percent compared to the same period in 2015, according to The Wall Street Journal. Crossover and SUV sales, however, increased by 6.8 percent.

That trend has caused Hyundai, which currently sells just five crossovers and SUVs across its three brands, to go into “emergency management mode,” according to a separate Reuters source.

The company has already replaced some of its Sonata production at its Montgomery, Ala., with the more profitable Santa Fe. It is also developing a subcompact SUV, dubbed project “OS,” that will be sold in the U.S., Europe and South Korea.

“We need that small SUV in the U.S., much sooner than later,” Scott Fink, one of Hyundai’s largest U.S. dealers, told Reuters.

Fink’s sense of urgency is understandable, given that Hyundai Motor shares have reportedly dropped roughly 40 percent in the past three years.

Thumbnail photo via Hyundai