Hyundai Motor logs 15 percent drop in 1Q profit

SEOUL, South Korea (AP) -- Hyundai Motor Co. said Thursday its first quarter net profit fell 15 percent as a labor dispute slowed car production in South Korea.

The country's largest automaker said net profit fell to 2.1 trillion won ($1.9 billion) in the January-March period, matching market forecasts, from 2.5 trillion won net profit a year earlier.

Sales rose 6 percent to 21.4 trillion won. Operating profit declined 11 percent to 1.9 trillion won.

Hyundai Motor, which is the flagship unit of the world's fifth-largest automaker, Hyundai Motor Group, blamed its lower profit on declining production at domestic plants, which outweighed increased production from new plants in China and Brazil.

Starting in March, Hyundai adopted new schedules for workers to remove overnight shifts but has yet to reach an agreement with its labor union on how to compensate workers for weekend and holiday shifts. The company's Ulsan plant has not produced any vehicles during weekends since March. Exports of locally produced vehicles during the first quarter dropped 11 percent over a year earlier.

The company said it hopes to reach an agreement with the union soon to resume weekend production.

"Once we reach an agreement over the weekend shifts at the Ulsan factory, we will be able to meet our annual sales target," Chief Financial Officer Lee Won-hee said during a conference call with investors. Hyundai is aiming for 6 percent growth in 2013 vehicle sales to 4.66 million units.

Another dent to its bottom line came from foreign exchange rates. Sales costs increased from the local currency's weakness over a year earlier, the company said. Fears of an outbreak of violence on the Korean Peninsula, stemming from North Korea's recent threats, eroded the value of the South Korean won.

Despite concerns about the Japanese yen's weakness that gives a trade advantage to Japan's automakers, Hyundai said it expected higher demand for passenger vehicles in the United States. It also said sales increased in emerging markets such as China and Brazil where new plants will be operating at full capacity for the full year for the first time.

Japanese Prime Minister Shinzo Abe's aggressive steps to end deflation have driven down the value of the yen. Hyundai said it now expects the yen to average about 100 to the U.S. dollar this year compared with its earlier forecast of 85 yen to the dollar.

But Japanese automakers produce more than half of their vehicles outside Japan, which caps the positive impact for them of the weaker yen. Toyota, Honda and other Japanese carmakers are not likely to aggressively discount prices of their products at a cost of damaging their brand values, Lee said.

"There will be an impact from the yen's decline but it will be within the range that we can manage," he said.