Hyundai Motor Ukraine General Manger Gennadiy Chetverukhin's confident manner isn't matched by what he said about his business.
The numbers tell the story in the starkest terms – the car industry in Ukraine is struggling, with companies expecting to sell only 36,000 new passenger cars nationwide in 2015.
That’s a far cry from the 542,000 cars Ukraine’s dealers sold in 2007. Then the 2008 global economic crisis came, and drastic decline: In 2009 sales fell to 162,600 units. By 2014, with war and economic turmoil rocking Ukraine, sales were down to only 92,000.
“The network we (dealers in Ukraine) set up is able to sell 70,000-80,000 units per year,” Chetverukhin said, adding that currently dealers sell on average 3,300 units per month. “That’s a very, very low number.”
If the trend continues, many car businesses will go bust in the next one or two years, he said.
“It’s as if (the car industry) is (becoming) just a hobby,” Chetverukhin said.
With $127 billion in assets, Hyundai Motor Company is a leading auto manufacturing company. The South Korean company sells 18 vehicle models on the Ukrainian market via Hyundai Motor Ukraine, which is a local distributor that partners with the Korean giant.
It’s risky for a foreign company to set up their own business in Ukraine, and many chose to partner with a local company that can cope better with in-country risk, Chetverukhin said. For instance, Ukraine’s currency devaluation is affecting foreign firms in Ukraine more than local ones.
Hyundai entered Ukraine’s market in 1999 with just a single showroom in Kyiv. Initial sales were around 15 vehicles per month, while today the company has more than 60 dealerships throughout Ukraine.
Chetverukhin declined to share any of his company’s detailed financial information with the Kyiv Post.
Hyundai’s sport utility vehicles are gaining popularity in Ukraine even though they are more expensive. For example, the Hyundai ix35 Santa Fe Grand is $54,300 whereas its compact car offering, the Hyundai Elantra, is only $18,000.
Today, Hyundai’s vehicles sold in Ukraine are delivered from the Czech Republic, Turkey, and South Korea.
War combined with the pre-existing bad economy make the overall situation unpredictably worse. “Of course we have to believe that the situation will change, and we really have a positive attitude to the Ukrainian situation,” Chetverukhin said.
Compared to, for example, food, which is cheaper and a life resource, vehicles are a luxury item, Chetverukhin noted. That’s why food is in higher demand today, whereas demand for cars is dramatically falling. Earlier, car owners would buy a new vehicle every two to three years, while today they hold on to them for an additional three to five years.
And because of the hryvnia devaluation – it has plunged by more than 50 percent since 2014 – it now takes longer to save up for a car. If in 2013 the average Ukrainian customer took about three-and-a-half years to save up enough money to buy a car, it now takes up to 11 years.
The Ukrainian unit of Hyundai invested $350 million to construct a production plant in Cherkassy. The factory is part of Bohdan Corporation, an automotive manufacturing company, and is able to produce 100,000 units annually. Ukraine’s high import duties – the bane of other car companies in the country – actually benefited Chetverukhin’s business, as he could rely on local assembly to produce cheaper, locally produced cars.
The factory closed in 2013. The more expensive imports that Hyundai sells takes a toll on profits. The problem is not just the dire economic situation, but government dithering over whether to support locally made goods or imports, he said.
“I remember that when we produced cars here, taxation was 25 percent customs duty and excise. That was more or less acceptable,” Chetverukhin said. But his partners will now only agree to produce locally if duties are at least 35-40 percent – far higher than the 10 percent now in place, in accordance with European standards.
So Hyundai doesn’t expect a big profit this year, but might make just enough to cover expenses, Chetverukhin said.
Investors still could do business in the future despite the difficult situation in Ukraine, Chetverukhin said.
“If you have the chance to invest and believe that in some three or four years the situation will stabilize, it’s a very good time to invest in the business,” he said. “But for the people who have already invested, who are owners of current facilities, it’s almost impossible not to sell at a loss or with negative margins.”
Gennadiy Chetverukhin
Age: 47
Nationality: Ukraine
Job: General Manager of Hyundai Motor Ukraine
How to succeed: “The success of all the carmakers depends on how much they invest in advertisement and how much support they provide to the price, because the current customer is really focused on the price…We’re paying more and more attention to our existing customers because, from the point of view of advertising costs, it’s much cheaper to keep current customers than to gain new ones.”
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].
