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Hyundai faces backlash from Chinese consumers

Bloomberg News

These are lean times for Hyundai dealers in China.

On a recent afternoon in Shanghai, shoppers thronged Honda and Chevrolet showrooms at a strip of city dealerships. Hyundai’s, however, was a ghost town. A half-dozen salespeople stood around with nothing much to do. Not a single customer had set foot in the store the previous weekend, and half the employees this year have already quit.

Chinese consumers turning away from Hyundai Motor Co.’s offerings in its largest market are the latest result of the problems facing South Korea’s largest automaker: a sedan-heavy lineup in an SUV market, poor brand perception and a nationalist backlash against its country’s decision to host the U.S. missile-defense system known as Thaad.

“They’re in the worst possible situation, caught in a perfect storm,” said LeeHang-koo, a senior research fellow at state-run Korea Institute for Industrial Economics & Trade in Sejong City, South Korea. “They have the wrong positioning in China, were late to sell new cars and SUVs, and had weak brand loyalty.”

Things took a dramatic turn for the worse in March after photos went viral of defaced Hyundai cars, purportedly damaged by people in China angry with South Korea’s decision to begin deploying Thaad. China views the move as a security threat and has stepped up economic retaliation against South Korean companies.

South Korea’s biggest carmakers, Hyundai and its affiliate Kia Motors Corp. were caught up in the calls for a boycott.

Combined sales of Hyundai and Kia plunged by half in March to cap a decline in the first quarter. Already reeling from a partial rollback of a sales-tax cut, the anti-Korean sentiment has compounded the automaker’s failure to catch the shift in consumer preference away from sedans to SUVs. And while Hyundai and Kia have tried to spruce up their brand, they’re still mainly associated with value-for-money models, a space that fast-improving Chinese carmakers have encroached on in recent years.

Hyundai is trying to plug the gaps in its portfolio by speeding up the introduction of more SUVs. Its ix25, Tucson and Santa Fe SUV models accounted for 22 percent of sales in China last month, trailing the industry average of 40 percent.

The automaker is scheduled to report its first-quarter results on Wednesday, with analysts estimating an 11 percent decline in operating profit.

At the Shanghai car show, Hyundai displayed the new China-exclusive ix35, due to go on sale at the end of the year. The company has plans to introduce six eco-friendly cars in China including an electric SUV, according to Chang Won-shin, head of Hyundai’s China joint venture with state-owned BAIC Motor Corp. Kia also unveiled a China-only SUV, the K2 Cross, to go on sale by June.

In the end, there may be little to do but to wait out the storm. That’s what Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. all did after suffering their first annual sales declines in 2012 following a territorial dispute between China and Japan that led to nationwide street protests and mobs attacking Japanese businesses. All three Japanese carmakers have since surpassed their pre-dispute levels in China and gone on to set new sales records.