Hyundai and Kia

Hyundai and Kia

1. The rise in value of the Korean currency, the won, against the dollar impacts the competitiveness of Hyundai and Kia’s exports to the United States. The won rose in 2006 and continued to appreciate throughout 2007, hitting a ten-year high against the dollar. A stronger won means that Hyundai and Kia vehicles sold in the United States for dollars are recorded at a lower value when translated back into won, which has hurt the financial performance of both companies. Despite rising unit sales, profits and both Hyundai and Kia fell considerably.

2. Hyundai and Kia are both expanding their presence in the United States partly as a hedge against currency movements. Opening U.S. automobile plants helps to hedge against adverse currency movements because they are able to price their cars below the prices of both domestic firms and the major Japanese companies such as Toyota and Honda. This low price strategy has enabled the two affiliated companies to grow foreign sales but their profit margins per car are low which makes them vulnerable to the changes in the Korean currency, the won, against the U.S. dollar and can be considered a drawback to this strategy that they have developed.

3. If Hyundai expects the value of the won to strengthen appreciably against the U.S. dollar over the next decade, I think that the company should still continue to expand its presence in the United States. I think this because both Hyundai and Kia have benefited from export led growth. Hyundai sells 60 percent and Kia sells 80 percent of its product in foreign markets of its production in foreign markets, particularly in the United States, where they have been gaining share recently. Since they have been gaining share, even with the strengthening of the won, it only makes sense for them to continue to expand into the United States.

4. The depreciation of the won by 28 percent against the U.S. dollar in 2008 does not imply that Hyundai and Kia were wrong...