SEOUL -- French carmaker Renault said on Tuesday it would spend more than $570 million in South Korea over the next three years to build a regional hub that will help drive its expansion into the hotly contested China car market.
Louis Schweitzer, the chairman of Renault SA, made the comments while in Seoul to celebrate the launch of Renault Samsung Motors Inc.'s first large sedan, the SM7.
"We believe Renault Samsung will play a major role in the development of the Renault Group. It will be involved in the preparation of the Renault project for China," he said.
Analysts said Renault, which has not yet established a presence in China, wanted to make maximum use of its well-established Korean unit.
"Korea is a good choice for Renault. It has fallen behind Volkswagen and other global rivals in China anyway and Korea could be the place to produce high-end brands with well-trained workers," said Suh Sung-moon, a Dongwon Securities analyst.
Renault has said it planned to submit a final proposal on a Chinese joint venture by the end of this year, but many analysts expect the process to be lengthy due to Chinese red tape.
Hit by stagnant domestic demand, sales at Renault Samsung, South Korea's smallest automaker, tumbled 29 percent to 67,589 units during the January to October period.
"In 2004, the Korean market took a downturn. Yet this by no means undermines our confidence in the future of Korea and Renault Samsung," Schweitzer said.
"We are now ready to take up new challenges," he added, referring to the firm's 600 billion won ($573.1 million) investment plan in South Korea.
He did not elaborate on how the money would be spent.
But media reports said Renault would spend a third of the investment on an engine plant with a capacity of 200,000 to 300,000 units a year.
Some of the gasoline and diesel engines to be built at the plant in the port city of Pusan would be exported to Europe for use by Renault and to Japan's Nissan Motor, he added.
Renault holds a 44 percent stake in the Japanese auto maker.
NO STEEL IMPACT
Renault is Europe's fourth-biggest carmaker. It is enjoying good operating margins this year thanks to the success of its Megane range.
Schweitzer said he did not foresee any production disruptions due to steel shortages in the wake of problems at Nissan.
"I can't say specifically anything about Nissan. I can say as far as Renault is concerned, we have no disruption due to steel problems," Schweitzer said.
Nissan said last week it would stop production at some domestic plants for five days in move that could spill over to its rivals as steel makers struggle to meet burgeoning demand.
Steel prices have jumped in the past year because of tight raw-material supplies and a surge in demand due to China's sizzling economy, and analysts say they looked set to resume their rise after a brief respite.
Samsung Renault planned to build a new sport-utility vehicle as early as 2007. Half of the cars built would be sold under the Renault brand, the chairman said.
He also said he was optimistic about the prospects for the new passenger sedan, based on Nissan designs, hoping that it could provide an impetus to long-depressed domestic sales.
The SM7 will compete in the larger sedan market with Hyundai Motor Co.'s Grandeur XG, Kia Motors Corp.'s Opirus and GM Daewoo Automotive & Technology's Magnus.
Jerome Stoll, president of Renault Samsung, forecast South Korea's car market would start to recover next year and growth should accelerate in 2006 and 2007.
Renault Samsung had received advance orders for 3,500 units of the SM7 in the five days leading up to its official launch, a company spokesman said.
In 2000, the French auto maker took a 70 percent stake in the former automotive unit of the Samsung Group [SAGR.UL]. The firm had previously offered only two passenger car models, mostly sold domestically.