South Korean automakers face a major headwind from a weakening Japanese yen, which will boost rivals like Toyota Motor Corp. (>> Toyota Motor Corp) next year, a Hyundai Motor (>> Hyundai Motor Co) think tank said.
The fall in the yen will intensify competition in major markets, such as China and the United States, where overall demand is expected to shrink in 2018, the think tank said.
It projected that the Korean won would fetch 978 per 100 yen next year, compared with 1,018 this year.
The re-election in November of Japan's Prime Minister Shinzo Abe, who favors massive monetary and fiscal stimulus policies, should point to further yen weakness, the think tank said.
Toyota Motor in November raised its forecast for full-year operating profit, in part due to expectations of a weaker yen, which can make goods exported from Japan cheaper and can boost the value of overseas profits when they are repatriated.
"The currency environment is expected to deteriorate next year," Lee Bo-sung, a director of the think tank, the Global Business Intelligence Center, said at a press briefing on Friday. The contents of the briefing were embargoed until 9 am Sunday Seoul time (0000 GMT).
"The weaker yen is expected to be the biggest challenge for South Korean automakers next year, as they are competing against Japanese," Lee said.
He said the price gap between Korean and Japanese cars had already narrowed due to the yen's decline. For example, Hyundai's Sonata sedan was 10 percent cheaper than Honda's (>> Honda Motor Co Ltd) Accord in the United States in 2011 and the gap is only 2 percent this year, he said.
A weaker yen and higher profit have also allowed Japanese carmakers to boost investment and gain market share in China and other emerging markets, Hyundai's stronghold, he said.
Hyundai Motor has seen its net profit tumble by nearly one-third so far this year, and is on track to miss its annual vehicle sales target by a large margin, having failed to position for a consumer swing to sport utility vehicles (SUVs) and a diplomatic row with Beijing that hit Korean-made products.
Hyundai Motor said on Friday it plans to roll out three SUVs next year in the United States - the redesigned Santa Fe, the Kona, and the tweaked Tucson, to revive its sales momentum. In China next year, Hyundai and Kia plan to release three China-targeted small SUVs next year.
(Reporting by Hyunjoo Jin: Additional reporting by Naomi Tajitsu in TOKYO and Cynthia Kim in SEOUL: Editing by Neil Fullick)
By Hyunjoo Jin