Financial Report Card - Hyundai and Honda leaves others in the dust

Hyundai's Q3 2009 nett profit is reported to be at USD832 million, the highest record achieved by the company ever. With that result, Hyundai now trails behind Volkswagen as the second most profitable mainstream car maker in the world (actually I have always thought the Toyota is the most profitable major car maker, but it seems that financial analysts in the industry believe Volkswagen holds the honour). Hyundai's sales in China soared 88% (first 9 months of 2009) spurred by government incentive to promote sub 1.6-litre passenger cars while in USA, Hyundai posted 1.3% sales growth for the first 9 months of this year. China is now the largest car market in the world and whoever wins there will also win big in the global sales tally. In China, Hyundai (represented by Beijing-Hyundai) outsold Toyota, Honda and Nissan in China, trailing behind only Shanghai-GM, Shanghai-VW and FAW-VW.

In contrast, Toyota saw a contraction of 28% in its sales in USA - it's largest market. Toyota is only scheduled to issue its financial report next month but analysts expect TMC to post a nett loss of 25 billion yen, or equivalent to USD 275 million. Its recent recall in USA is expected to cost USD 440 million.

Honda is the only Japanese car maker that is expected to post a profit. Like Toyota, Honda Motor Co. will only issue its quarterly financial results next month but the Nikkei business daily estimates that Honda will post a nett profit of 60 billion yen or USD 660 million. Honda did not embark on a similar mega expansion plan like Toyota, and was thus less exposed to the current credit crunch and did not have to deal with large excess production capacity like Toyota. Honda's very successful motorcycle business also provided it with some form of cushion against the current recession. As you know, the money is now in Asia but not just any part because it is definitely not in Japan. More specifically, developing parts of Asia. Motorization is still in its early stage in South and South East Asia. Vietnam, Indonesia, Thailand, India, China and even Taiwan have a significantly large motorcycle sector. The motorcycle industry is traditionally more resilient against an economic slowdown.

Not sure what was VW Group's Q3 financial results but the VW Group generated 1.2 billion Euros of profit in the first half of 2009. Like Hyundai, VW's strong growth is very much due to their limited exposure to the US car market and VW's leading position in China as well as many other developing markets like Brazil and Eastern Europe - all of which are less affected by the credit crunch. It's premium segment brand Audi is also rapidly closing in on BMW, Mercedes-Benz and Lexus.

However there is a need to be caution and understand that a large portion of Hyundai's earnings is due to the weak Korean won. In March 2009, the won was at a 11 year low against the greenback. Even though the won have since recovered 30% of its value, it is still 20% lower against its value at the end of 2007. Both VW and Hyundai owe a large portion of their sales record to vehicle scrapping stimulus packages by governments of China, Germany and to a certain extent the USA. Surely this cannot continue into 2010.