Amid a week of speculation, the announcement that Kia Motors is actively engaged in site selection for an automotive plant in U.S. South drew commentary in Korea by its auto industry watchers. Here are some of the key points raised in Korean media...
Korea Herald has reported that although there is enough room for another factory next to Hyundai's plant in Montgomery, Alabama, Korean industry watchers say the possibility of building Kia's factory there is very low.
This is simply because having two or more factories in a single state could expose the carmaker to various risks in terms of taxation as U.S. states have different legal systems. For example, Japanese Toyota Motor Corp. runs separate production facilities in Kentucky, Indiana and West Virginia.
"In order to make use of HMMA's auto parts supply channel and logistics network, it would be better for Kia to operate a factory in a nearby state," said Mirae Asset Securities Co. analyst Park Young-ho.
Mississippi, which is just two to three hours' drive from HMMA, would be a competitive candidate, but Kia is in no hurry as there are more contenders.
The new U.S. plant is likely to break ground before 2009, Korean industry watchers say. It takes about two years to build an auto assembly plant but the planning process requires at least another three years prior to construction.
The investment would amount to 1 trillion won [$1 billion U.S.] if it plans to churn out 300,000 autos every year like HMMA.
"For carmakers competing to grab a bigger slice in the limited market, production volume translates into corporate value. It would be a great opportunity for Kia, which produces less than half of Hyundai, to beef up productivity in the long run by building its third overseas plant in the United States after China and Slovakia," said analyst Park.
"If Kia continues annual growth of about 10 percent, it would be safe to begin U.S. production before 2009," Park said.
Hyundai Motor, which sold 420,000 cars in the U.S. last year commanded 2.6 percent of the market. Its Alabama plant currently has an annual production capacity of 150,000 units, which will be expanded to 300,000 cars next year.
As Kia's Slovakian plant is due for completion in November next year, it could also be more profitable to export the cars produced in Europe to the United States, considering employment costs, according to analyst Lee Sang-hyun of Hana Securities Co.
Why build a Kia Plant in America?
A key reason noted by Korean analysts is that Kia Motors Company is more vulnerable to currency risks compared to its affiliate Hyundai, which was able to offset the loss caused by the strong domestic (Korean) currency against the (U.S.) dollar. This is due in part to Hyundai dominating almost half of the domestic Korean market as well as increased production overseas.
Kia's operating profits for the mother company in Korea in the first and second quarters this year were an unexpectedly low 0.4 percent and 0.6 percent, respectively. A new U.S. plant would lessen the currency risk.
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