Reflecting Hyundai Motor’s 1.36 trillion wins and Kia’s 1.54 trillion
Investment Briefing, 3Q Bad News Concerns
The photo shows the headquarters of the Hyundai Motor Company in Yangjae-dong, Seoul. [연합뉴스]
Hyundai Motor and Kia announced on the 18th that they will reflect the cost of quality of 2.9 trillion won due to the increase in the replacement rate of the Theta 2 GDI engine, etc.
Hyundai Motor plans to create a provision reflecting approximately 1.36 trillion in wins and 1.54 trillion Kia in quality costs. In the third quarter of this year, Hyundai Motor Company and Kia Motors expected to generate operating profits of KRW 3 trillion and KRW 2 trillion respectively, thanks to the high exchange rate and strong SUV sales.
However, due to the quality cost reflection, Hyundai Motor’s operating profit is expected to drop to the average level of 1 trillion won and Kia’s operating profit is expected to fall below 1 trillion won.
As Q3 earnings were supposed to be slow, Hyundai Motor Company and Kia Motors held a briefing session with domestic and overseas institutional investors and stock market analysts to brief them on specific details.
The Theta 2 engine had previously suffered quality controversies, such as shaking and engine shutdown. As the problem persisted, Hyundai and Kia decided to implement a lifetime engine warranty program for vehicles equipped with the engine in 2019. At the time, the two companies were reflecting approximately 3.394.4 billion won, including 2.13 billion won. trillion won for Hyundai Motor and 1.25 trillion won for Kia, as a provision for quality costs in the third quarter of 2020.
This reflection on the cost of quality is also a follow-up to the decision to provide a lifetime warranty (free repair in case of problems with the Theta 2 engine) three years ago. This is interpreted as the result of a longer period of use of used cars and a lower scrapping rate due to supply and demand problems for semiconductors. The cost of the lifetime warranty program has increased as the engine replacement rate increases, and the cost of quality has increased significantly more than expected.
Hyundai Motor Group said, “We will focus on preventing the recurrence of quality problems through fundamental improvement measures and process innovation, and will do our best to restore customer confidence in quality.”
Meanwhile, vehicles equipped with a Theta 2 engine include ▶ Sonata (2011-2018 model) ▶ Tucson (2013-2018 model) ▶ Santa Fe (2013-2018 model) ▶ K5 (2011-2018 model) ▶ Sorento (2011- model) 2018) ▶ There is a Sportage (2011-2018 model).
By Lee Byung-hee, staff reporter [email protected]
