Hyundai third-quarter profit misses estimates, dogged by quality woes

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SEOUL (Reuters) – Hyundai Motor’s (KS:) quarterly net profit widely missed analyst estimates, after the South Korean automaker booked additional charges to address potential engine defects in the United States and its home market.

Uncertainties linger about its long-standing quality issues, which have invited investigations from U.S regulators and prosecutors after a whistleblower claimed in 2016 that Hyundai and affiliate Kia Motors (KS:) should have recalled more vehicles over engines catching fire.

The prolonged quality woes overshadow efforts by the automaker to steer a recovery following six consecutive years of profit declines at a time when it is stepping up spending to catch up in the global auto technology race. Last month, it announced a $1.6 billion investment in a joint venture to develop self-driving vehicle technologies with Aptiv (N:).

Hyundai Motor’s third-quarter net profit rose 59% to 427 billion won ($364.75 million), compared with the average 684 billion profit estimate of analysts based on I/B/E/S Refinitiv data. That also compared with 269 billion won booked in the same period a year earlier when its profit took a dive because of costs related to engine and airbag quality issues.

Hyundai Motor said earlier that it has earmarked another 600 billion won to settle some of the U.S. engine-related lawsuits, install software to detect potential engine failures and offer lifetime warranties for faulty engines.

Its total retail sales fell 3% in the third quarter from a year earlier, with the U.S. sales recovery offset by drops in China and South Korean sales.

A favorable South Korean currency and more sales of sport utility vehicles helped support U.S. sales, while China sales remained dismal after Hyundai closed one of its factories in Beijing.

Hyundai heir Euisun Chung faces challenges in shoring up investor confidence as he prepares a new proposal to revamp the ownership structure of parent Hyundai Motor Group, of which the car maker is the flagship, as part of a succession plan.

The group’s previous proposal was scrapped last year following opposition from U.S. hedge fund Elliott.

Hyundai shares rose 0.4% after the earnings announcement, versus the flat wider market (). The shares are up about 2.5% in 2019 after slumping 24% last year.

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