Kia Motors Corp. plans to produce “a range” of small cars for markets including the U.S. at its $1 billion plant in Monterrey, Mexico, after production begins in the first half of 2016, the company said.
Kia did not identify the nameplates it plans to build at the new plant in a news release issued Wednesday evening, but it said “a range of yet-to-be confirmed compact models” would be made at the plant.
Reuters, quoting unnamed sources, reported that the Forte compact would be one of the models built there and that the Sportage compact crossover was under consideration.
According to a spokesman, the plant will be outfitted to produce both compact and subcompact vehicles, though the company is still evaluating which specific models it plans to produce there.
Kia’s current small car lineup in the U.S. consists of the Forte, the Sportage, the Rio subcompact and the Soul subcompact, Kia’s No. 2 top-seller in the United States.
Construction is slated to begin in late September with Job 1 production expected in the first half of 2016 with an annual capacity of 300,000 units.
In its statement, Kia said that the additional capacity will help address its ongoing supply shortage in the U.S. market that has been caused by the brand’s rapid growth here, where sales hit 535,179 units last year from 300,063 vehicles in 2009. Kia sales were up 7 percent through July to 349,722 vehicles.
Kia said it will also use the plant as a base to expand its presence in countries throughout Central and South America. The additional capacity will also free space on Kia’s production lines in South Korea to support demand elsewhere in the world.
Kia’s announcement about the plant followed an official signing ceremony held in Mexico City earlier on Wednesday for Kia’s $1 billion investment featuring Enrique Peña Nieto, president of Mexico, and Hyoung-Keun Lee, vice chairman of Kia, and other company executives and officials from Mexican government.
Automakers are increasingly using Mexico as a hub for small-car output. The country’s lower labor rates help pad the typically thin profit margins of small cars sold in the U.S. Mazda Motor Corp., Nissan Motor Corp. and Honda Motor Co., for example, have either begun production or announced plans to build small cars in the country.
In addition to lower labor costs, Mexico’s free-trade agreements with more than 40 countries make it a potent base for exports.
Kia also hinted it may open a sales channel in Mexico, saying it has been looking to enter new markets to bolster its growth prospects. A local manufacturing plant is key to doing so, as current trade laws in Mexico impose high tariffs on imported cars from South Korea, Kia said.
“With its strong growth forecasts for new vehicle demand, Mexico was chosen as the site for Kia’s next overseas plant given that it is one of the few remaining major markets in the world in which Kia does not have a sales presence,” Kia said in its statement.
Vehicles built in South Korea accounted for 57 percent of Kia's global sales last year, compared with 38 percent for Hyundai.
U.S. sales of the Kia Forte rose 5 percent through July to 43,517 vehicles -- on par with the overall U.S. market increasing 5 percent so far this year.
Kia's U.S. assembly plant in Georgia, which produces the Optima sedan and Sorento SUV as well as Hyundai's Santa Fe SUV, is currently running at full capacity.
Reuters contributed to this report
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