South Korea's Hyundai Motor Co <005380.KS> and Kia Motors Corp <000270.KS> on Monday said "weaker sales in China" likely dragged down overseas sales in March, when a diplomatic row over a missile system led to a rise in anti-Korean sentiment.
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At Kia Motors, China sales likely halved from the year prior due to political tension and other reasons, a person familiar with the matter told Reuters. Kia declined to comment.
Hyundai and sister Kia posted declines in March overseas sales, without disclosing a country-by-country breakdown. China, the world's biggest auto market, accounted for over a quarter of the pair's 2016 overseas sales.
China last month reiterated its opposition to a missile defense system that South Korea planned as a deterrent to nuclear-armed North Korea, saying the radar was capable of penetrating its territory. South Korean firms have since encountered difficulties in China, such as protests, suspension of operations and cyber crime.
"The March sales results are gloomy. The market is getting tougher and tougher," said the person, who was not authorized to speak publicly on the matter and so declined to be identified.
Hyundai Motor suspended production at one of its Chinese plants from March 24 to April 4, fuelling concern that tension over the Terminal High Altitude Area Defence (THAAD) system may be hurting sales.
But industry officials said Hyundai and Kia have deeper, longer-term challenges in the shape of local brands. The likes of Geely Automobile Holdings Ltd <0175.HK> have gained market share with affordable sport utility vehicles, at the expense of Hyundai and Kia which rely heavily on sedans.
Kia has also been in a dispute with over 100 of its Chinese dealers, who said in January they might refuse to sell its cars unless they receive 2.5 billion yuan ($363.20 million) in compensation for losses incurred from unsold stock.
In March, Kia's overseas sales fell 13 percent to 190,601 vehicles. Last year, around 50,000 of its March sales were in China.
Hyundai's overseas sales fell 8 percent to 342,164 vehicles, the lowest for March since 2013, company data showed.
Hyundai and Kia on Monday said "overseas performance last month seems to have been impacted by weaker sales in China."
"We have seen a recent drop in dealership traffic in China as consumer sentiment toward Korean products overall is low and competitors are initiating special promotions targeting our customers," they said in a joint statement.
(Reporting by Hyunjoo Jin; Editing by Christopher Cushing)