Hyundai Considers Europe For New Auto Plant

SEOUL December 18, 2002; Jeongjin Lim writing for Dow Jones reported that even as it is building a new plant in the U.S. state of Alabama, Hyundai Motor Co. is turning its eyes to Europe for its next overseas push, driven by an ambition to become the fifth-largest carmaker in the world by 2010.

"Hyundai Motor has long-term investment plans to set up new overseas plants in each of the major regions to tailor its products to the unique requirements of each market," said Senior Executive Vice President Harry Choi.

By having a new plant in Europe and boosting its capacities in other overseas facilities, Hyundai Motor hopes to increase overall annual production capacity to 5 million units by 2010, from the current 1.9 million units.

South Korea's largest carmaker will begin feasibility studies on the best site for its European plant "soon," with a decision expected around 2005, Choi said.

He didn't provide a specific timeframe when it will start building the plant - the company's first in Europe - or how much it will spend.

But company spokesman Park Sang-Woo said it usually takes two to three years to open a new plant from when the decision is first made.

The European market accounted for about 28% of Hyundai Motor's exports last year, while its largest export market, the U.S., took up 47%.

During the first eleven months of this year, Hyundai Motor's sales reached 1.6 million units with 984,069 units sold overseas.

For 2003, Hyundai Motor expects its exports to reach more than 1 million units.

The company currently has 11 overseas production plants, mostly in Asia and Turkey, which together roll out 166,000 units a year.

"It is time for Hyundai Motor to look overseas, particularly with its production almost on par with total capacity," said Samsung Securities senior analyst Kim Hag-Ju. "With a plant in Europe, Hyundai will be able to enjoy advantages such as lower shipping costs and easier access to customers who are relatively unfamiliar with Hyundai Motor," he added.

Furthermore, Kim pointed out Hyundai Motor has been suffering low profitability in Europe due largely to foreign exchange losses - a problem that could be resolved with a regional manufacturing base.

Sales In Europe Steadily Growing

The carmaker's presence in Western Europe is still relatively small, with a 1.67% share of the passenger-car market. It expects sales in Western Europe to total 230,000 units in January-November this year, marginally up from 228,000 units for all of last year.

"Sales in Europe have been steadily growing despite generally sluggish car demand in the region amid a hazy global economic outlook," said Hyundai Motor's Park. "It is largely thanks to brisk demand for a new compact model, Getz."

Sales of Getz, which was released in Western Europe in the summer, totaled 36, 000 units so far this year and are targeted to reach 800,000 units next year.

ING Barings analyst Suh Sung-moon said a relatively high tariff on car imports is one of the biggest obstacles to Hyundai Motor and other foreign car makers increasing their exports to the area. The EU imposes a 10% tariff on imported cars, while the U.S. imposes a 2.5% tariff, he said.

Aside from its plans for Europe, Hyundai Motor will first work on increasing production in China, the world's fastest growing automobile market.

Hyundai Motor recently opened a new plant in Beijing under a joint venture agreement with Beijing Automotive Industry Holding of China.

The new Chinese plant's annual capacity totals 30,000 units and Hyundai Motor plans to invest a total of $1.1 billion in the venture to expand output to 500, 000 units by 2010.

Hyundai Motor's plant in Montgomery, Alabama, is also set to roll out 300,000 passenger cars from the first half of 2005.