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Hyundai Motor sees China slowdown, Nissan to bounce back

Reuters (Beijing) - Hyundai Motor Co (005380.KS) expects its strong sales growth in China to moderate in the second half of the year, hit by an economic slowdown, tight output capacity and its failure to produce new models.

Hyundai Motor, which combined with its affiliate Kia Motors Corp (000270.KS) is the world's fifth-biggest automaker, on Thursday posted a forecast-beating profit. Analysts now expect a slowing Chinese economy to take a toll on its stellar growth.

"The Chinese market will slow down in the second half because of the weaker-than-expected Chinese economy. Hyundai's growth will moderate too, because of the high base of last year," said Kim Dong-ha, an analyst at Kyobo Securities.

He expected Hyundai's second-half sales to grow 7 percent in China - the world's biggest auto market - after the automaker posted a 36 percent surge in first-half car sales.

Nissan Motor Co (7201.T), which reported a 14 percent rise in quarterly net profit on Thursday, expressed confidence it was on track for a rebound in its key Chinese market, where it saw sales plunge since last September following a diplomatic row.

China's economy has slowed in nine of the past 10 quarters, compounded by a survey this week that showed the country's manufacturing engine lost further momentum in July and the job market weakened.

A Reuters poll taken July 16-17 showed economists have slashed growth forecasts yet again and now expect China to slip further in the second half.

"China's car market made an explosive growth of 16 percent in the first half, as local governments expanded car subsidies, and automakers beefed up promotions," Hyundai Motor's Chief Financial Officer Lee Won-hee told a conference call.

China's automakers' association said earlier this month that it may soon restrict vehicle sales in eight more cities to curb traffic congestion and pollution.

But Lee said the regulations would not derail the growth of China's auto industry, which is expected to grow 9 percent this year.

Hyundai Motor is the third biggest carmaker in China after General Motors Co (GM.N) and Volkswagen AG (VOWG_p.DE). GM announces second quarter results later on Thursday.

The anticipated slowdown in Hyundai's business in China during the second half of this year reflects the country's general economic slowdown, according to a Hyundai marketing executive who spoke on condition of anonymity.

The Hyundai executive added that a dearth of new or significantly redesigned models in the second half for both Hyundai and Kia brands, as well as the lack of manufacturing capacity in China would also impact growth.

Even after starting production at a third plant last year, Hyundai cannot build cars fast enough.

"We were OK in the first half but anticipate capacity constraints in the second half, even as we try to squeeze more out of our existing facilities," the Hyundai executive told Reuters.


Nissan said there were "positive signs of improving sales volume in China" after the Japanese carmaker was particularly hard hit by a diplomatic row between Tokyo and Beijing last September.

China was Nissan's biggest market for the last four years and accounted for about a quarter of its sales volume last year, making Nissan the most reliant on that country among Japan's carmakers. Japan's No.2 carmaker makes vehicles in China in partnership with Dongfeng Automobile Group Co Ltd (0489.HK).

Nissan's China sales slid 15 percent from a year earlier, with its market share slipping 2 percentage points to 5.5 percent. Because of a difference in the Chinese and Japanese financial years, Nissan's January-March sales in China are reflected in its April-June results.

But the drop in its China sales narrowed markedly in the latest quarter. Sales fell 1 percent year-on-year in the April-June period to 308,000 vehicles, giving it a market share of 6.2 percent, down 0.7 percentage point.

Nissan Corporate Vice President Joji Tagawa said he expects its annual market share in China to rise to 6.5 percent. That compares with a 7.5 percent market share in January-June, 2012.

Nissan has so far not seen any impact from monetary tightening in China, he said, but he declined to comment on macroeconomic outlook.

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