Although Kia has reported another fall in its quarterly earnings, things are not looking all that grim for the world’s fastest-growing carmaker. If the Korean currency, the won, stabilises, and steel prices cool down, the profits at Hyundai’s no-frills affiliate should move into the fast lane, while booming exports mean its sales figures are already there.

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The Asian financial crisis is long gone and Korean car makers can no longer count on a cheap national currency to boost car exports. In fact, something quite the opposite has happened since the Korean won gained 15% against the dollar and 8.5% against the Euro earlier this year. For a company as reliant on exports as Kia, the appreciation of the won could only have been grim news.


Indeed, for the second quarter in a row, the joint impact of the strong won and rising steel and oil prices wiped out a vast amount of the company’s potential earnings. Compared with last year, between April and June Kia earned 27% less, with net profit at KRW148.3 billion ($144.3 million), down from KRW203.3 billion ($198.2 million) for the same period last year.


However, Kia is the fastest-growing car maker in the world and the fact that the losses in operating profit occurred against a 12.6% increase in global sales must not be overlooked. Indeed, herein lies the reason why one should not be unduly pessimistic in assessing Kia’s outlook.


In Europe, where the Korean carmaker sells 60% of its cars, new registrations between January and May soared by more than 65%. With an eye on annual sales of more than 200,000 cars, Kia has been rather articulate about its expansion plans for this market. For example, the company is building a European design centre in Germany, focused on developing cars that will be even more appealing to European buyers.

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Should both the won and steel prices ease up, as analysts believe they will, Kia’s profits will come to reflect its sales volumes. A further boost to the bottom line is likely to come from the increased sharing of vehicle platforms with parent Hyundai. Hyundai sees this as a strategic step on the way towards it entering the top five global carmakers list by 2009. Kia’s burgeoning sales growth means you would not bet against it realising this vision.


SOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.


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