Hyundai Motor profit soars on China, U.S. sales

Rivals are struggling, but Korean automaker Hyundai set an earnings record thanks mainly to the strength of the fast-growing Chinese market

While international rivals are swimming in red ink, Hyundai Motor is on a roll. A day after the South Korean company posted a record quarterly profit, investors pushed the automaker's stock 6.3% higher, extending year-to-date gains to a dizzying 177%. Executives forecast booming sales in China and a growing market share in the U.S. will maintain momentum in the months ahead.

"No auto company has outperformed during the industry turmoil," says Ahn Young Hoe, chief investment officer at fund manager KTB Asset Management, which holds Hyundai stock. Ahn reckons Hyundai's projection that it will sell 3.05 million vehicles globally this year, up from 2.84 million last year, is "reasonable."

Hyundai is a rarity among global automakers during this global financial crisis. Its net profit hit a new record of $832 million for the three months that ended in September, breaking its previous record of $690 million registered only three months earlier. Boasting a strong lineup of small cars, Hyundai has benefited from government incentives promoting more fuel-efficient vehicles in many countries. It is also capitalizing on a weak Korean currency, which increases profits earned overseas and has enabled it to finance aggressive marketing campaigns. That's the opposite of Japanese rivals, such as Toyota and Nissan, which expect to sustain losses for a second straight year in 2009, weighed down by the strong yen.

Stimulus in China

Hyundai's biggest gains have been in China, the world's hottest auto market. Despite earlier predictions of a gloomy period, overall passenger car sales there jumped 43%, to 5.74 million units, in the first nine months of this year, thanks to a government stimulus package, including generous incentives for buyers of cars with engine capacities of 1.6 liters or less.

Hyundai was well prepared. Models such as its Elantra Yuedong sedan, i30 compact, and Accent subcompact meet the requirements. What's more, Hyundai had doubled Chinese production capacity to 600,000 just before the global financial crisis hit last year. The result: Its auto sales in China are up 88% this year, increasing Hyundai's market share in the country to 7.2% from 5.5% last year. It is now selling more cars than any Japanese rival, including Toyota, Honda (HMC), and Nissan, and trails only market leaders Volkswagen and General Motors. "Everything has worked out nicely," says Michael Sohn, auto analyst at brokerage Woori Investment & Securities.