* S. Korean firms see 2014 car sales at 7.86 mln, up 4 pct
* Quick weakening of yen favours exports by Japanese peers
* Shares skid with won at 5-year high vs dollar, yen
By Hyunjoo Jin
SEOUL, Jan 2 (Reuters) - The man who led South Korea's auto industry on a tear through the last decade said Hyundai Motor Co and Kia Motors Corp expect what will be their lowest annual sales growth since 2003 as the weak yen fires up Japanese rivals.
In his annual New Year speech to staff on Thursday, 75-year-old group chairman Chung Mong-koo said sales at Hyundai and its smaller affiliate Kia will likely grow just 4 percent in 2014. Global competition is about to get tougher in an industry facing changing technology and an uncertain future, he warned.
The Korean duo exports about two-thirds of its cars from South Korea, a much higher proportion than Japanese peers, making them more vulnerable to currency fluctuations. A weaker yen gives Japanese carmakers like Toyota Motor Corp, Honda Motor Co and Nissan Motor Co leeway to offer customers better deals in key export markets like the United States - the same advantage that helped Hyundai and Kia after the global financial crisis of 2008.
"Competition among companies is intensifying, as the global economy has entered an era of low growth," Chung said in his traditional New Year address to some 1,000 employees at Hyundai's Seoul headquarters. "Technological convergence leads to change in the industry, and adds to uncertainty."
On Thursday, the won hit its highest level for more than five years against both the dollar and the yen, prompting talk in Seoul of possible government intervention in currency markets to help exporters. Shares in Hyundai and Kia, ranked fifth in the world by combined global sales, ended down 5.1 percent and 6.1 percent, respectively.
The yen's fall has been stoked by Japan's attempts to support its export industries and pull its economy out of a two-decade slump. A senior official in South Korea earlier this week expressed concerns that the country's own exporters could be hurt as a result: auto exports typically account for close to 9 percent of South Korea's total.
Toyota is on course for record profits in the financial year ended March 2014, largely helped by the weaker yen. That trend also helped Mazda Motor Corp and Subaru maker Fuji Heavy Industries Ltd become two of the top three performers in the Nikkei stock average in 2013.
BREAKNECK TO BLEAK
The year ahead promises to be testing for Chung, more than 10 years into the job leading the company founded by his father. Hyundai has shaken up U.S. management amid a fall in market share there, while a new free trade deal with the European Union means German rivals are encroaching on its once-impregnable domestic stronghold.
Hyundai and its affiliate Kia are planning for global sales of a combined 7.86 million vehicles this year, up from 7.56 million in 2013. To achieve that, Chung is counting on growth from revamped versions of key models like the Genesis and Sonata sedans, as well increased production capacity in China.
The forecast increase for 2014 would be in line with the global auto market's projected sales growth of 4 percent, but is the lowest since 2003's 2.3 percent. It's also bleak by comparison with breakneck growth at one of the auto industry's biggest success stories during the global economic downturn at the end of the last decade.
At their growth peak in 2010, Hyundai and Kia's annual sales climbed 24 percent as the weaker Korean won allowed them to offer stylish, feature-loaded new cars at affordable prices.
"The yen's weakness is not welcoming news to Hyundai investors. This may adversely affect its market share and sales," said Song Sun-jae, an analyst at Hana Daetoo Securities.
However, he said he still expects Hyundai and Kia to sell 8 million vehicles this year, higher than its target, and slightly outperform the global market. "Hyundai and Kia have offered conservative sales targets and beat them in recent years. I expect this year would be no different," he said.
In regulatory filings, Hyundai said it was targeting sales of 4.9 million vehicles this year, while Kia's goal is to reach 2.96 million.
The pair's 2013 sales did beat the original Hyundai-Kia target of 7.41 million as growth in China and Brazil offset a lackluster showing at home. In South Korea, auto makers like Germany's Volkswagen AG have been boosted by a free trade pact between the country and the European Union.
But at 6 percent, 2013's increase was below the previous year's 8 percent rise, leaving Hyundai-Kia already in their third straight year of declining growth.
Hyundai and Kia have increased overseas production over the years. They made 49 percent of their cars in Korea, according to industry data for 2012, the last year for which figures have been released. Of those, however, they still exported 67 percent.
By comparison, Honda makes about 20 percent of its cars in Japan, and of those it exports about 20 percent.
In recent years, Chung's focus has been more on managing quality and brand-building than new plants. But the export comparisons have left company watchers wondering whether Hyundai and Kia might announce plans to build new plants in the U.S. or other markets this year.
Fuelling those questions, analysts say capacity constraints, along with aging models and rising competition, may have led Hyundai to miss its 2013 sales target for the U.S. Automakers including Hyundai plan to announce U.S. sales on Friday.
The task of bolstering Hyundai in the U.S. in a year of crucial new launches now falls to sales head David Zuchowski, who recently replaced John Krafcik as U.S. chief.
Kia also plans to start production at its third plant in China early this year, while Hyundai has added capacity of 150,000 vehicles at its third factory in Beijing.