TORONTO- The South Korean automaker that once struck fear in the Big 3 took another major step backward in North America last week.
Hyundai Motor Corp. pulled jon its Canadian assembly plant- at least for now- after four years of operation. It also closed an Ontario wheel plant.
The assembly plant, in Bromont, Quebec grew from Hyundai's stunning early success in Canada and then the United States. But it has been mainly a symbol of unfulfilled dreams. In its best year, 1991, Bromont built just 28,000 cars. Its capacity was 100,000.
The plant's future is being 'reevaluated,' Hyundai says. Just nine months ago, Hyundai announced it would spend $66 million ($48 million U.S.) to convert the plant to begin producing the next Elantra, code-named J-2, in July 1995.
Now, Hyundai might sell the plant or convert it to build something other than cars.
The plant's 840 workers, who had been on temorary layoff since production of the Sonata ended there last September, have been let go for god.
'When we did some more number-tumbling, it didn't work out that we could make a profit on building (the Elantra) there,' said John Wright, senior vice president at the Hyundai Auto Canada sales arm.
Wright cited these reasons of the change of plans:
Narrow margins in the fiercely competitive economy car segment.
The continuing fall of the Canadian dollar. The Canadian dollar is now worth just 73 U.S. cents, so it's more expensive to buy the U.S. currency that Hyundai used to purchase imported parts.
The 62.5 percent North American content requirement for duty-free trade under the new North American Free Trade Agreement.
A lingering slump in Europe that is now forecast to last longer than expected. Supplying Europe from Bromont was a major element in the Elantra plans.
WANTED: A PRODUCT
Wright said Hyundai's options are wide open.
'We have too much invested there ($400 million Canadian) to walk away from it,' he said. 'We've got to find something to put in there that can be made profitably. What that is, at this stage, I can't tell you.'
On the other hand, Wright conceded, 'If somebody walked along and said, 'Here's $500 million, we'll buy the plant and property,' I'm not saying we wouldn't look at it.'
If Bromont closes before the fall of 1995, Hyundai will have to repay $46 million ($34 million U.S.) in interest-payment assistance from the federal and provincial governments.
Few observers here expect Hyundai to put Bromont back to work. Sale of the plant is more likely. But that is a long shot in view of its remote location - about 50 miles east of Montreal and the simmering possibility that Quebec will one day secede from Canada.
THE BOOM TURNED SOUR
Hyundai committed to build Bromont in 1985 during the company's euphoric early years in North America. Hyundai sold 25,000 Pony subcompacts in 1984, its first year in Canada. In 1985, the larger Stellar arrived, and Hyundai sales vaulted to 79,072 more than either Toyota or Honda. The Pony became Canada's best-selling model.
That prompted General Motors and Ford to file a dumping complaint against the Korean firm in July 1987. Hyundai won the case in March 1988, but by then the uncertainty had done some damage.
'A lot of people just didn't think we would win the case, and that was hurting confidence among the public,' recalls David Penhorwood, Hyundai's vice president and general counsel.
But the boom was already turning to bust before the dumping case. Sales in Canada dipped to 70,000 in 1986, to 51,000 in 1987 and to 31,000 in 1988. They fell to 19,000 in 1992.
Meanwhile in the United States Hyundai was staging a toned-down version of its Canadian 'bubble.' Hyundai introduced the Excel in February 1986 and sold 169,000 cars that year and about 264,000 in 1987 and 1988. But as reports of poor quality spread, Hyundai's U.S. sales fell below 109,000 in 1992 and 1993.
PROBLEMS PILED UP
Toronto analyst Denis DesRosiers attributes Hyundai's spectacular rise and fall in Canada in part to buyers' misconceptions. They thought all Asian makes were alike and expected Japanese quality from the Korean cars.
The Pony and the Stellar were poorly built, and the cars that replaced them weren't much better. In Consumers Union reliability surveys, for example, the 1987-91 Excel and the 1989-91 Sonata were rated 'much worse than average' for every model year they were on the market.
So by the time Bromont began building Sonatas in February 1989, Hyundai's honeymoon was already over. And a recession lay ahead.
Last year, Bromont built 14,243 Sonatas before production ceased at the end of September.
Wright said the wheel plant, in Newmarket, Ontario, was closed because of overcapacity for alloy wheels in North America. Hyundai had originally hoped to get business from other North American manufacturers, but it was not successful.
The lack of production at Bromont also affected demand for Hyundai wheels. The plant is for sale, and 71 employees are out of work.
R.I.P. BROMONT 1985-1994
1985: Hyundai Canada sales peak at 79,072; Bromont plant announced
1986: Plant construction begins
1988: U.S. sales peak at 264,282
1989: Assembly plant opens
1990: Stamping plant opens
1991: Bromont hits peak: 28,201 Sonatas built
1993: 108,796 sales in U.S., 20,286 in Canada. Bromont halts Sonata build
1994: Elantra production plans canceled