Hyundai rides recession-conscious consumers to record earnings

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On Thursday, South Korea's Hyundai Motor Company posted Q3 profits of $826.2 million, more than three times its 2008 profits in the same quarter and an all-time quarterly high for the automaker. Given that the previous record of $680 million was set in Q2 of this year, it is clear that Hyundai, the world's fifth-largest automaker, is riding a wave of massively increasing profits.

A large part of this leap lies in a 34 percent jump in sales, attributable to many factors, including the cash-for-clunkers program and deep discounts from Hyundai. In the third quarter, the automaker claims to have taken 5.5 percent of global market share, up from 4.4 percent the previous year.

The company has been helped along by Korea's weak won, which has enabled its products to perform well against the far stronger Japanese yen. As Japan's currency has risen against all sixteen of the world's major currencies over the last two years, the country's manufacturers have been unable to compete with the incentives and lower prices that Hyundai, Samsung, LG and other Korean manufacturers have offered consumers.

Of course, it doesn't hurt that Hyundai's cars are also well-made and carry the best warranties in the business. While the company's customers can't look forward to high resale value, the company offers ten-year powertrain coverage, seven-year anti-corrosion coverage, five-year bumper-to-bumper and five-year roadside assistance coverage in its standard warranty. For new-car buyers, this translates into a car that is largely covered for a few years after they have finished making payments. While not the sexiest cars on the road, Hyundais may well be the best buys for cost-conscious consumers.

Still, while Hyundai's sales success -- and its ability to increase its operating profits five-fold -- are extremely impressive, it's also worth noting that the third quarter of 2008 was absolutely horrendous for the automaker, with a 70 percent drop in operating profit and a 14.5 percent drop in sales. But just as the 2008 recession decimated the automaker, the 2009 recovery seems to be holding a great deal of promise for it.

Hyundai has announced plans to sell more than three million cars this year, and it hopes to increase sales by five percent next year. However, its success may also prove its undoing: in the third quarter, the won strengthened 8.1 percent against the dollar, slowly driving up the prices that Hyundai has to charge for its cars. Barring significant intervention, it is likely that the won will continue to rise against other currencies, gradually putting the brakes on the company's impressive growth.

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