SEOUL (Reuters) -- South Korea's second-largest auto maker, Kia Motors Corp., reported on Tuesday that second-quarter net profit rose 3.4 percent, as hefty provisions for warranties offset rising exports of pricier cars.
Kia's net profit gain was paltry by comparison with a gain of 86 percent in quarterly profits at affiliate Hyundai Motor Co.
"Kia set aside 290.2 billion won ($246.3 million) to cover warranty-related provisions and expenses during the first half of this year, up 71 percent from a year earlier, while Hyundai's provisioning amount remained relatively the same," said Chae Kyoung-Sup, an auto analyst at Shinyoung Securities.
Kia reported net profit of 186.4 billion won ($158.2 million) for the quarter to June 30, up from 180.3 billion a year ago, Reuters calculations show. Sales for the quarter were 3.6 trillion won, versus 3.11 trillion.
Kia said it derived more than half its sales from exports in the first half, up from around 44 percent last year.
A major selling point for Kia and Hyundai cars have been their generous 60,000-mile (97,000-km) bumper-to-bumper warranty and 100,000-mile coverage for engine and transmission for cars sold in the key U.S. market. European customers get a three-year, bumper-to-bumper warranty, Kia said.
With the three big U.S. car firms driving a fierce price war on their home turf, Kia's spending on incentives such as cash rebates stood at about $1,842 per car in the first half, similar to a year ago, according to Goodmorning Shinhan Securities.
Hyundai Motor was offering around $1,500 per vehicle, compared to rival Toyota Motor Co's $1,132 a vehicle in July, according to research firm Autodata. But that was still below the "Big Three" average of $4,000.
PRODUCT MIX IMPROVED
Kia has spent heavily to improve the quality of its cars in a move to catch up with rivals such as Toyota.
Analysts were positive on Kia's efforts to switch its product line-up from cheap compacts to more expensive vehicles, such as the Sorento sport utility vehicle and Opirus luxury sedan.
Sales could gain more momentum in the fourth quarter on cuts in tax, but ongoing labor woes weighed on performance, said Song Young-sun, an analyst at Korea Investment and Securities.
"Sales of larger vehicles went up and Kia is hoping to make up for weak local sales by boosting exports," Song said.
South Korea car sales taxes in July to boost consumption.
Management is in talks with Kia's union following partial strikes to press for a rise of 11.1 percent in wages and a shorter work week. Unionized workers at Hyundai recently won a wage hike of 8.6 percent or 98,000 won a month, besides bonus and incentive payments.
Kia said it was close to taking a one percent share of Europe's annual market of 16 million automobiles on brisk sales of sport utility vehicles and minivans.
Kia has a 0.8 percent share of the European market now.
"Although our market share is still marginal, we view Europe as an entry market," said Kia spokesman Lee Sang-keum.
Kia also seeks to crank up market share in China.
It said this month it plans a new factory in China with an annual capacity of 400,000 units by 2005, ramping up production to tap a booming market.
Earlier, Kia said it planned total investments of 1.25 trillion won this year, up 56 percent from last year, with more than 800 billion going into research and development.