Both Hyundai and Kia rely on exports for much of their sales. Consequently, the companies are highly vulnerable to changes in exchange rates. When the South Korean currency, the won, rises relative to the U.S. dollar, cars sold in the United States are recorded at a lower price when translated back into won. This of course hurts Hyundai’s and Kia’s profits, and forces the two companies to sell more units just to stay even.
Both Hyundai and Kia announced plans to expand production in the United States. Hyundai already has a plant in Alabama, and Kia will soon be opening a plant in Georgia. Both companies hope that having a U.S. manufacturing site will help protect them against adverse currency movements. The U.S. production locations allows the firms to shift production during times of sustained currency movements. Since both companies rely on the U.S. market for a substantial share of their profits, having a U.S. presence may be beneficial simply because they are closer to an important market, and because U.S. consumers might be more inclined to purchase cars made by Americans. At the same time though, manufacturing in the United States where wages are higher could make it more difficult for the companies to implement their low cost strategies.
If Hyundai expects the won to appreciate, Hyundai should consider expansion in the United States. A stronger won implies a weaker dollar, which in turn implies that U.S. consumers would need more dollars to buy a Hyundai exported from South Korea which could mean a drop in sales. Moreover, a stronger won means that cars that are exported from South Korea will be recorded at a lower value when translated from dollars back to won. Hyundai experienced this very situation in 2006 when the won hit a 10 year high against the doll
The rise in Hyundai’s and Kia’s sales during early 2009 can be attributed to a combination of Hyundai’s and Kia’s low cost strategies and the fact that the won tumbled 28 percent...
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