SEOUL - Korean suppliers now entering the United States in force say they aim to do far more than just make parts for Hyundai Motor Co. in Alabama.
Nearly a dozen Korean companies have made large investments in Alabama that together total more than $535 million. Other companies have invested smaller sums.
All this creates more competition for traditional U.S. suppliers.
"They will definitely be under a lot of pressure," says Rajeev Das, an auto industry analyst at Goldman Sachs in Seoul.
Those who can't match their foreign competitors' cost structure will lose business, he says.
The Korean influx into the United States is part of a global trend. Korean automakers and their suppliers also are setting up plants in China, India, Turkey and Slovakia.
But the trend in the United States goes beyond supplying Hyundai's new assembly plant in Montgomery, Ala. Many Korean parts makers have begun delivering parts to Big 3 factories in the United States.
A unit of Hyundai-affiliated supplier Hyundai Mobis is building a $35 million plant in Toledo, Ohio, to assemble complete chassis modules for the Chrysler group's new Jeep plant.
Other Korean companies are supplying engine parts to DaimlerChrysler AG's global engine alliance plant in Dundee, Mich. The alliance is building two plants at the site. A new line of four-cylinder engines developed jointly by DaimlerChrysler, Hyundai and Mitsubishi Motors Corp. will start production in September.
A Hyundai spokesman says about a dozen Korean companies will supply parts to the Dundee plants. But because it's a joint project, he says, Hyundai can't release the companies' names.
General Motors' Korean subsidiary, GM Daewoo, is said to be urging its Korean parts makers to supply other GM plants. Korea's LG Electronics Inc. recently was awarded some OnStar telematics business by GM. Formerly the contracts likely would have gone to Motorola Inc.
"The Big 3 automotive manufacturers are looking for low-cost manufacturing based on cost-reduction," says Kim Pan Jo, manager of international sales and marketing for steering parts at Korea's Mando Corp. "They are looking for competitive suppliers, and I think they found some good suppliers in Korea."
Surge in parts imports
Korean auto parts exports to the United States surged 27 percent last year, to $1.14 billion, says Choi Moon Seok, export team manager at the Korea Auto Industries Cooperative Association.
They are expected to grow even more this year, he says. That is partly because of Hyundai's new plant. But also, he says, it is because, "many Korean parts manufacturers are supplying members of the Big 3 in the U.S."
One such company is bearing maker Iljin, which already supplies bearings to Chrysler in the U.S. and to Ford and GM elsewhere, as well as to Hyundai.
Iljin has a warehouse and sales office in Detroit, but it has decided not to build a U.S. plant because of high labor costs in the United States, says a company official.
Some companies that followed Hyundai to Alabama say their local plants will supply only Hyundai. But many Korean suppliers are keen on finding other U.S. customers.
SL Corp. is investing $53 million in its new Alabama plant for lighting parts and shift levers. "Of course" the company will supply other makers besides Hyundai, says sales manager Lee Su Eok.
The company already has a plant in Clinton, Tenn., that makes automatic shift levers for GM, he says. The Alabama plant will sell lighting parts to GM.
Hyundai is the only customer at Dongwon Auto Parts Technology Alabama LLC, says Charles Harbough, human resources manager. The plant makes door frames, impact beams and stamped parts.
But Dongwon's Korean parent does lots of international business, so "in possibly three to five years we could expand our market in the United States," he says.
Mando Corp., which manufactures braking, steering and suspension systems, has just built a plant in Opelika, Ala., to supply Hyundai - the first stage of what it expects will be a $74 million facility by 2010.
But besides Hyundai, the plant eventually will supply other U.S. automakers, replacing components now being shipped from Korea, company officials say.
"We already supply GM and DaimlerChrysler in North America and Ford in Europe and Australia, says Yoon Pal Joo, a senior research engineer at Mando.
The Alabama plant is Mando's first in the United States, but it has three in China, another in Malaysia and one in Turkey. Some are joint ventures. Mando also has an r&d center near Detroit and one in Beijing.
Following Hyundai to Alabama has opened new opportunities for smaller Korean manufacturers, too, says the suppliers' association's Choi.
Initially, they must focus on supplying Hyundai. But eventually, he says, they'll have a chance to supply the Big 3.
Pressure to go global
Hyundai's Alabama plant is the big attraction for Korean suppliers. But Das, the Goldman Sachs analyst, says other factors also pushed them to go global.
One impetus was the Asian economic crisis in the late 1990s. In Korea, it caused some automakers to go bankrupt and severely depressed auto production.
"The suppliers got hurt a lot, because they were so dependent on the domestic carmakers," Das says. Some big suppliers looked for other customers, and many sought business outside of Korea, he says.
Another factor was the move by foreign carmakers to invest in the troubled Korean companies starting in about 2000, Das says.
Today, three of Korea's five automakers are controlled by foreign owners - GM, Renault and a Chinese company. DaimlerChrysler held a stake in Hyundai and indirectly its Kia subsidiary until last year.
As foreign automakers grew familiar with the Korean supply chain, they became aware of the suppliers' competence and lower cost, Das says.
As their customers go to Asia for parts, some U.S. and European suppliers are heading to Asia as well, hoping to produce parts more competitively.
Visteon Corp. has acquired a 70 percent stake in Halla Climate Control Corp., a Korean maker of heater and air-conditioning systems. Visteon then invested $28 million to open a facility in Alabama to build front-end modules and HVAC units for Hyundai. The plant is being managed by Halla, says Managing Director S.W. Oh.
For now, the plant is concentrating on supplying Hyundai, Oh says. But, he adds, "Other customers will be considered after stabilizing our supply to Hyundai. I guess it will take a couple years."