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Hyundai Motor intimidated by Brexit

[THE INVESTOR] Hyundai Motor, South Korea’s largest carmaker, views Britain’s departure from the European Union as an imminent threat, and not an opportunity.

“Internally, we view threats from the faltering European economies to be larger than the opportunities presented by the stronger yen sparked by Brexit,” a source at the company told The Investor and The Korea Herald.
 
“This is because we see the European market as being stable and having more growth potential compared to the emerging nations that are seeing  declining,” he added. 
 
Hyundai Motor Group chairman Chung Mong-koo                                                      The Investor
Hyundai Motor Group chairman Chung Mong-koo                                                      The Investor

On June 27, the first business day after the Brexit fallout, Hyundai Group chairman Chung Mong-koo ordered executives to "closely monitor" its global sales impact, and to minimize aftereffects.

After the results of the UK referendum to leave the EU, the stock prices of Hyundai Motor, Kia Motors and their parts maker Hyundai Mobis initially all went up on the expectation that the rising yen would give the company an edge over its Japanese rivals. 

Hyundai Motor also has only about a 3 percent market share in Britain, meaning the upside from a stronger yen may eclipse a potential fallout from Brexit.

However, some market analysts said the faltering European market may have a larger impact than expected because other European countries may decide to follow Britain’s example. 

“If there are signs that other countries also leave, that would prolong the weak euro and directly affect Hyundai competing with German automakers in the European markets,” said a senior analyst, who declined to be named.  

If the automaker lost share in the markets -- which have been stable and growing – it would strike another blow to the automaker amid declining sales in its key emerging markets -- China, Russia and Brazil due to an economic slowdown, growing local companies and weak currencies. 

Hyundai’s performance in the continent has fared well so far. In 2015, the automaker’s sales grew around 10 percent in the European market from the previous year, accounting for more than 10 percent of the automaker’s total sales. From January to May this year, regional sales rose 12 percent on-year. 

Higher tariffs are another barrier that Hyundai Motor would have to face. 

“When the UK leaves the EU, Korean automakers may be subject to tariffs of up to 10 percent,” said Choi Won-kyung, an analyst from Kiwoom Securities. 

Hyundai and Kia sold around 170,000 units in the UK in 2015, accounting for around 2 percent of the company’s total global sales. If they are subject to tariffs, the additional cost is expected to be around 60 billion won ($51 million) per year. 

By Shin Ji-hye (shinjh@heraldcorp.com)
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