Hyundai's Love Affair With Europe

Hyundai's Love Affair With Europe

Hyundai Motor is ready to woo the European market as it prepares to introduce 22 new vehicles in the region. The company and its affiliate, Kia Motors, have been gaining market share from more established European brands, such as Fiat and Volkswagen , despite low demand for new cars.

Industry data reported in The Wall Street Journal shows that Hyundai and Kia have doubled their combined market share to 6.2% in the first half of 2013. Despite the slowdown in sales momentum due to low demand, Hyundai has found opportunities to gain greater market penetration. Competitors, like Fiat and General Motors' Opel brand, are switching to produce higher-margin models that cater to consumers who are less sensitive to price.

Hyundai's new model - the i10
The i10 is the first of 22 new or updated models to be rolled out by 2017; it was designed and engineered in Europe, making it a true European car. A great deal of attention was placed on the design of the car - design is cited as the No. 1 reason European customers purchase a Hyundai. Customer clinics conducted in Italy and the U.K. found that the i10 received the "best spontaneous reaction" from participants when compared to models from the competition.

Hyundai's chief operating officer for Europe, Allan Rushforth, told The Wall Street Journal that the company's goals include selling 500,000 cars in Europe by 2017 and gaining a 5% market share by 2020. Last year, the company had a 3.5% share of the European market by selling 432,240 cars. For the first half of 2013, total car units sold in Europe were 212,146; the i10 was the fourth most popular model sold (29,902 units) and made up 14% of unit sales.

Fiat deals with continued weakness in the eurozone
With Europe experiencing high unemployment and the eurozone just recently emerging from a recession in the second quarter of 2013, European automakers are playing it safe and predicting that the auto sector will stay in contraction mode. As Hyundai expanded into Europe, rival Fiat addressed its own issues with decreasing demand. While the company's passenger car segment saw improvements in April over last year, May and June sales were down 6%. Overall revenues in the Europe-Middle East-Asia region were down 3%. Fiat is relying on stronger sales in the U.S. to offset the drop in European sales. During the first quarter, Chrysler and its line of trucks and SUVs helped Fiat post a 4% increase in trading profit and similar results were noted in second quarter.

Hyundai's lower production costs give the company a competitive advantage over its European rivals. Unlike European automakers, Hyundai's factories tend to operate at full capacity, making it easier for the company to cover its high fixed production costs. The company's European manufacturing plant in Turkey was upgraded this year to increase production to 200,000 vehicles a year by 2014. This plant will produce the i10 and another new model, the i20. Another plant located in the Czech Republic is producing 300,000 vehicles a year.

Volkswagen looks to hold market position
For Volkswagen, maintaining a competitive cost position and earnings momentum are two key goals for powering through the economic crisis in Europe. Volkswagen is well known in Western Europe, where one in four new cars, or 24.4%, carry the Volkswagen brand. The company's Europe market sales in 2012 rose 11.1% over the previous year but in the first half of 2013 were down 0.4%. VW's luxury brand, Audi, has provided sales support - in September 2013, Audi's year-on-year sales were up 10%. Audi also had strong sales in the U.S ( up 6.2%) and China (up 28.2%). By the end of 2013, the company expects vehicle deliveries to exceed those of the previous year.

My foolish conclusion
Even with ongoing uncertainty in the European market, it appears Hyundai's goal to expand its line of vehicles in Europe is starting to pay off. Its competitively priced car models have led the company to gain greater market share from its rivals. Back in 2009, Hyundai was also able to capitalize on government subsidies passed in several European countries that encouraged car buying; the company was better equipped than its rivals to handle the additional demand.

Recently, the new i10 model has been a top seller for Hyundai in Europe and investors should watch for continued strength in its sales. The company plans to sell 74,000 i10s in 2014, which would increase the company's share of the mini-car segment to about 6.3%. If Hyundai's competitors change their focus to vehicles that cater to more affluent customers, the company may be able to gain a following among Europe's more cost-conscious car buyers.

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Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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