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Dealers press Hyundai for plant

Several sites under study; decision is months away

Project update
Issue: Should Hyundai build a U.S. auto plant?

Status: The automaker is considering up to 6 U.S. sites. The governor of Mississippi, where Nissan is investing $1 billion in a new truck plant, visited Korea last week.

Factors: Korean plant capacity has been a point of conflict for Korean unions; U.S. retailers see no short-term easing of supply constraints.

NASHVILLE, Tenn. — Hyundai Motor Co. is still months from deciding when, where and how to return to North American vehicle manufacturing, even though strong U.S. sales are leaving retailers in short supply.

The wait means no relief for Hyundai dealers who are short of cars and selling them almost as fast as delivery trucks can bring them from the port.

The Korean automaker is thought to be considering as many as six sites for a U.S. assembly plant.

Last week, Mississippi Gov. Ronnie Musgrove paid an economic development call in Korea, although state officials would not say whether the Hyundai plant search prompted the visit.

Hyundai also is believed to be seriously considering sites in Ohio, eastern Alabama and central Kentucky. But the company might not make a decision until spring.

Dealers want more now

That’s tough for the U.S. sales subsidiary, where business is rocking. Even if Hyundai decided tomorrow to go ahead with a North American plant, it would be at least two years before a new factory could begin to ease retail constraints here.

“They’re telling us that the Korean plants just can’t build any more,” said Keith Dennis, owner of Dennis AutoPoint, which sells Hyundais in Columbus, Ohio, and a member of Hyundai Motor America’s national dealer council. “We’re selling Sonatas as fast as we can get them off the truck. They told us that we’ll sell 75,000 Sonatas next year. The truth is we could sell 175,000 if they could just deliver them.”

Hyundai has said it intends to produce vehicles here again — the automaker ran an assembly plant in Bromont, Quebec, from 1989 to 1995 — probably somewhere in the southern United States and possibly in conjunction with Kia Motors Corp., which Hyundai owns. But company leaders in Korea have indicated the matter is a complex one to sort out.

In an interview with Automotive News on Page 27 of this issue, Kia President Kim Noi Myung said, “I’m not so sure that Hyundai’s U.S. plant announcement is as imminent as the press seems to be suggesting.”

Kia dealers are eager to see the supply of vehicles grow. Sales of Kia and Hyundai brands both are up more than 41 percent so far this year.

While Hyundai and Kia both had a 51-day supply of vehicles on Dec. 1, retailers think those numbers belie the demand for several products in select markets. In the company’s central U.S. region, for example, there is only a 14-day supply of Sonatas. According to the company, the available pool of vehicles tends to contain less popular colors or trim packages.

That situation is the core problem importers have faced for 30 years. U.S. retailers cannot fan the sales flames of a brand or a model unless they have good access to the factory that builds it. Although the industry’s vehicle ordering methods are improving, it still typically takes 90 to 100 days for a U.S. dealer to get a specific model from an overseas factory.

That means vehicle volumes and allocations that are reaching Hyundai dealers today were determined three months ago, in the chaotic days immediately after the Sept. 11 terrorist attacks.

V-6 shortfall

Hyundai also faces tight constraints on V-6 engine production. At the company’s newest plant in Asan, Korea, Hyundai builds both Sonatas and their V-6 engines. Honda Motor Co. has just opened a U.S plant in Alabama that also builds vehicles and engines under the same roof.

Because of its tight engine capacity situation, Hyundai now may be considering a similar combined vehicle and engine plant in its U.S. plant study.

Another problem for Hyundai to sort out is any lingering territorial issues between Hyundai and Kia. Despite the plan to combine several of their vehicle platforms, there still are no plans for a Hyundai plant to build a Kia product, or vice versa.

Combining Hyundai and Kia production has been cited as a critical way to give a U.S. factory enough volume to make the investment feasible. Both brands together will sell about 575,000 cars and trucks in the United States this year.

But Korea’s trade unions may prove resistant to that idea, especially if it is perceived as pulling the volume out of a Korean Kia plant to shore up a new Hyundai plant in America.

“From my end,” Kia’s Kim noted of the U.S. plant proposal, “there has been no discussion yet about allocating any portion of production to Kia.”

You can reach Lindsay Chappell at lchappell@crain.com

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