Hyundai Motor Hits Political Speed Bump

By Trefor Moss Features Dow Jones Newswires

Hyundai Motor Co. was forced into a week-long suspension of production in China, as a political dispute between Beijing and Seoul wreaks havoc at the Korean auto maker in its biggest overseas market.

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Hyundai said on Wednesday that its Chinese joint venture, Beijing Hyundai Motor Co., halted production last week because it was unable to pay a supplier of essential fuel-tank parts, causing the supplier to halt deliveries.

"The slowdown in China has put a strain on their financial situation, that's why they haven't been able to pay their supplier," said a Hyundai spokesman.

Production resumed midday Wednesday following talks with the supplier, he said.

Hyundai Motor's shares fell roughly 4% following news reports of the shutdown early Wednesday, before recovering. The company's stock has lost 16% of its value since May, as Hyundai announced its worst quarterly results in five years in July, citing the China situation as a primary cause.

The suspension compounds what has already been a disastrous year for Hyundai in China. Sales slumped after Seoul's deployment of a U.S.-built missile-defense system in February in the face of North Korea's growing nuclear threat.

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Beijing condemned the move, claiming it threatened China's national security. That sparked an unofficial campaign against South Korean consumer goods in China, with retailers and auto makers among the hardest hit.

Hyundai's sales in China fell 55% from March to July, while sales at its subsidiary Kia Motors Corp. crashed 63%. Both operate in China with state-run joint venture partners, Beijing Auto Industry Corp. and Dongfeng Motor Corp., respectively.

The dispute has led Kia to cut production at its three factories in Yancheng, about 600 miles south of Beijing, which employ about 30,000 people. Those workers have been getting by on reduced hours and lower pay, as Kia tries to avoid full-scale layoffs.

The production suspension at Beijing Hyundai didn't affect the separate Kia joint venture, the Hyundai spokesman said.

Hyundai, previously the No. 3 foreign auto maker in China by sales, had been planning to ramp up its China output in 2017. A fifth Hyundai plant in Chongqing had been due to start production this month, and in its 2017 business plan the auto maker said China sales would increase 9.5% this year to 1.25 million vehicles.

But Hyundai only managed about 350,000 sales in the first seven months of the year.

Hyundai sold 1.14 million vehicles in China last year, not far behind its domestic tally of 1.67 million. China accounted for roughly a quarter of its global sales.

South Korean President Moon Jae-in urged Chinese President Xi Jinping to remove the "constraints" being placed on Korean businesses in China at a July meeting, but the pressure on Korean firms hasn't eased.

Chinese officials have denied there is any official boycott against South Korean products, though state-controlled media have urged Chinese consumers to steer clear of Korean goods, and switch off once-popular Korean pop music and TV shows.

When Mr. Moon took office in May, he put additional deployments of the new missile defense system on hold, in an apparent effort to mollify Beijing, though he has since come under political pressure not to cave into China's perceived bullying tactics by discontinuing the missile system altogether.

The missile-defense spat came at the worst possible time for Hyundai, which was already facing a "fundamental issue with product positioning and brand equity" in China, according to Janet Lewis, managing director of equity research at Macquarie Capital Securities.

The company needs to refresh its "aging product line-up" to win back customers, Ms. Lewis said, while hoping that an end to the political backlash against Korean products enables a quick rebound.

Min Sun Lee in Seoul contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

August 30, 2017 01:39 ET (05:39 GMT)