SEOUL - South Korea's top carmaker Hyundai Motor Co. is expected to post a fall in quarterly profits on Tuesday because of ballooning costs of its warranty program and spending to create new models.
Hyundai, 10 percent-owned by DaimlerChrysler AG, has spent more money in the first quarter to develop new cars and build up reserves for future warranty costs.
But for the full year, Hyundai said on Friday it was aiming for an almost 30 percent rise in profits, driven by brisk exports of high-end cars such as Santa Fe SUVs.
Pre-tax profit was expected to rise 28 percent to 2.54 trillion won in 2003 as the company reaped benefits from previous investments, a company spokesman told Reuters.
Hyundai was betting on exports, mainly to the United States, to drive its growth this year in the wake of weak demand at home, analysts said.
For the first quarter, Hyundai is expected to earn a net profit of 336.6 billion won ($281.2 million), according to five analysts polled by Reuters. This compares with a profit of 586.6 billion won a year ago.
Sales for the three months ended March 31 are expected to have risen to 6.4 trillion won from 6.1 trillion.
"The results for the first quarter of last year did not reflect higher provisions for warranties and research and development costs," said Sohn Jung-won, an auto analyst at Goodmorning Shinhan Securities.
In comparison, Toyota Motor Corp., the world's third-largest automaker, reported this week a record recurring profit, but faces fierce competition from Detroit's Big 3.
"Hyundai has been able to perform well in the U.S. market due to its niche in the small-to-mid-sized vehicle segment," said Lee Young-min, an analyst at Meritz Securities.
Hyundai has replaced cheap compacts such as the Excel with sleeker models such as the New EF Sonata mid-sized sedans and it has also pledged generous warranties.
Since 1998, Hyundai has offered a competitive 60,000-mile bumper-to-bumper warranty and a 10-year, 100,000-mile powertrain warranty (engine and transmission).
A spokesman for Hyundai said it expects to tap into its cash reserves to cover warranties beginning next year, but declined to give details.
The South Korean automaker had its best April in history in terms of sales in the key U.S. market. Sales rose 8.7 percent from a year ago to just more than 35,000 units, despite overall U.S. sales falling sharply.
Hyundai ranks seventh in U.S. sales with a 2.5 percent market share, just after Nissan Motor Co. and above Mitsubishi Motors Corp. Both Japanese automakers saw U.S. sales decline last month.
"What we're seeing now is Hyundai Motor solidifying its brand awareness in the U.S. market as quality improves and consumer satisfaction rises," said Cho Soo-hong, an auto analyst at Dongbu Securities.
Said Cho: "Also, incentives offered by the Big 3 U.S. automakers since last year have worn out their novelty effect. That's why Hyundai, which began incentives this year, is seeing rising U.S. sales."