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Published: July 23, 2009

Hyundai Motor outshined its global rivals by reporting a record quarterly profit Thursday, another sign that the once middling carmaker from South Korea was translating the global economic downturn into an opportunity to catch up with American and Japanese auto giants mired in losses.

Hyundai is the most aggressive among the smaller carmakers who saw the misery of the giants, like the bankruptcies of Chrysler and General Motors, as a chance for growth.

While others have been struggling to cut costs, shutting down assembly lines and firing workers, Hyundai has been radically increasing spending on marketing, especially in the United States, seizing on its improving global brand image, a growing appetite for smaller cars and the windfalls from a weak South Korean currency that makes its cars cheaper.

“The way, and a smart way, Hyundai thinks is this: ‘You can’t expand your market share when everyone else is doing well. But you’ve got a chance when everyone is struggling,”’ said Kevin Lee, an auto analyst with Goodmorning Shinhan Securities. “And Hyundai thinks this is the time.”

Hyundai’s net income for the quarter from April through June soared 48 percent from a year earlier to 811.9 billion won, or $650 million, the carmaker said Thursday. That compared with 546.9 billion won in net profit a year earlier and a 225 billion won profit in the first quarter of this year.

In comparison, Ford Motor said Thursday that it had posted a $2.3 billion quarterly net profit, mainly because of debt restructuring actions. Without the one-time items Ford would have lost $638 million.

Besides the weak won, Hyundai benefited at home from government incentives, like sales tax cuts and easier consumer financing, that increased domestic demands for cars.

This year, it challenged its American rivals by offering U.S. buyers an assurance that if they lost their jobs within a year of buying a Hyundai car, they could return it. Others had to follow suit with similar offers.

Then last month, it tapped American drivers’ foremost concern when it allowed them to lock in fuel prices for new Hyundai vehicles at $1.49 a gallon for a year. Hyundai pays for any balance between $1.49 and market prices.

Such a strategy and the growing popularity of its fuel-efficient Elantra and Accent small cars helped Hyundai expand its U.S. market share to 4.3 percent, compared with a 3.1 percent share a year earlier. In contrast, Toyota Motor and General Motors saw their market shares slipping in the same period. Toyota’s U.S. sales dropped by almost 35 percent in June.

Hyundai, together with its affiliate Kia Motors, forms one of the world’s biggest automotive groups.

The two expanded their combined share of the American market to 7.3 percent, up from 5 percent last year.

“Hyundai Motor reached 5 percent of the global market share in the first half of this year for the first time ever, amid a 15 percent decline in global automobile demand,” the company announced Thursday.

Sales rose to 8.08 trillion won in the second quarter from 6.03 trillion won in the first quarter, though they still marked a drop from 9.11 trillion won the same quarter a year earlier. In June, its worldwide sales grew 9.6 percent from a year ago, the first rise in eight months in a global vehicle market that has shown little sign of recovering.

Hyundai aims to increase sales this year by 7.9 percent to 3 million vehicles, Chung Tae-hwan, the company’s chief financial officer, told reporters and analysts. The ambitious goal came even as Hyundai expected car sales in the United States to fall to 9.7 million units this year from 12 million last year.

“The real strength of Hyundai, compared with the likes of Toyota and G.M., is that its geographical exposure is more diverse. It is not as heavily exposed to the U.S. market,” whose recession crippled the two auto giants, said Mr. Lee.

Indeed, Hyundai’s overseas affiliates in China and India helped out its mother ship during the current global slump. Sales in China during the first half of this year surged 56 percent to 257,000 units, as the Chinese government’s sales tax cuts for small cars increased its turnover there.

Hyundai’s vehicle lineup, which focuses on small and medium-size cars, was the type that benefited the most from incentives that governments in the United States, China and Europe are handing out to encourage auto purchases, analysts said. GM depended heavily on SUVs and pickup trucks while Toyota depended on luxury models like Lexus.

Hyundai has also had its image polished by its luxury Genesis model, which was named the North American car of the year at the 2009 Detroit Auto Show.

Hyundai faces challenges, too. The won has begun rising against the dollar, gaining 10.3 percent in the second quarter from the previous three months.

The won’s value in the second quarter was down 20.8 percent against the U.S. dollar from a year earlier, bringing in a windfall that allowed the company to splurge on marketing.

Its technology in hybrid cars also lags behind that of Japanese competitors.

Earlier this month, it introduced its first hybrid, the Avante/Elantra LPI, powered by liquid petroleum gas and electricity. But its first gasoline-electric hybrid is not due until next year.

But Hyundai has one important relief this year: It will likely avoid a labor strike, which has become an almost annual event at its home factories in the third quarter.

Its union is now rudderless, hit by internal power squabbling.

“I think an even better time awaits Hyundai in the third quarter,” said Mr. Sohn.

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