Capacity Unconstrained: Kia Plans Mexico Factory

Hyundai might benefit from Kia’s plant too.

Kia Rio hatchback
Kia Rio 5-door hatchback.

The Hyundai Kia Automotive Group is the fourth largest automotive manufacturer in the world with the Hyundai brand taking leadership worldwide. Kia, however, has been showing strength in several markets including in the US where it has been gaining on Hyundai.

Hyundai Kia Capacity Constraints

Sales for both brands have been held down in the past year as capacity constraints weigh in. Both manufacturers have just one North American plant with Hyundai’s based in Montgomery, Alabama, and Kia’s plant in Georgia. That West Point, Georgia, plant also builds the Hyundai Santa Fe, a model that Hyundai moved from Alabama soon after the plant opened.

Hyundai and Kia have been operating under an informal self-imposed capacity constraint as both US manufacturing plants operate at full tilt across three work shifts. Both companies also import cars from South Korea, but additional North American capacity is still needed.

Hyundai Accent
Hyundai Accent five-door hatchback.

Kia Mexico Manufacturing

On June 2, 2014, Reuters reported that Kia Motors will build a new plant in Monterey, Mexico. That plant will build two small vehicles including perhaps the Kia Forte and Kia Rio. With a capacity of 300,000 units per year, it might also build a Hyundai product such as its compact Elantra. That would free up space for Hyundai to expand Sonata production, its popular midsize sedan that has been updated for 2015.

Hyundai and Kia had been rumored to be looking at new locations in the southern United States including the former GM plant near Shreveport, Louisiana, the future home to the three-wheeled Elio Motors trike. The Korean automakers, however, prefer to build its factories from the ground up instead of taking over existing facilities.

The Hyundai-Kia juggernaut has been increasing its global and US market share steadily for more than a decade. A new factory is planned in China and the Mexican factory, if built, would take approximately 21 months to complete. Thus, production would not begin before spring 2016 even if groundbreaking were held today. Likely, Hyundai and Kia will lose market share in 2016 without the expanded capacity notes Reuters.

2014 Kia Forte

Hyundai Kia Pricing Advantage

Producing cars in Mexico would enable the Korean automakers to gain some stability as higher labor costs and currency erosion has made it difficult to maintain a pricing advantage. Both brands have been known for pricing their vehicles about 5 percent below competitor’s prices and including more standard content. With competing manufacturers also turning to Mexico to find low-cost labor, that pricing advantage has been slipping away. Mexican built cars, incidentally, come by way of NAFTA and are included in North American build capacity.

The Kia brand has enjoyed strong growth in the past few years as it taps Hyundai platforms and powertrains to build new models of its own. For instance, the Kia Optima is based on the same platform underpinning the Hyundai Sonata and the Kia K900 is a derivative of the Hyundai Equus.

Hyundai Sonata
Turbocharged: Hyundai Sonata midsize sedan.

Auto Trends: Hyundai Kia Sales

Both Kia and Hyundai posted record US sales for May 2014.

Kia enjoyed a 14.8 percent year-over-year increase, selling 60,087 units. Its best-selling Optima sedan continues to lead with 16,843 unit sold for the month. Other strong sellers included its Soul multi purpose vehicle at 15,606 units and its Sorento crossover utility vehicle with 10,548 units sold.

Hyundai sales rose by 3.7 percent to 70,907 units. The company’s Elantra compact continues to lead, with 21,867 units sold followed by the Sonata at 20,404 models distributed. In third place was the Santa Fe crossover at 10,638 units. This CUV is also Hyundai’s fastest growing model.

Together, Hyundai and Kia are battling Nissan for sixth place in US sales. GM is on top followed by Ford, Toyota, Chrysler and Honda.

Author: Matthew Keegan
Matt Keegan has maintained his love for cars ever since his father taught him kicking tires can be one way to uncover a problem with a vehicle’s suspension system. He since moved on to learn a few things about coefficient of drag, G-forces, toe-heel shifting, and how to work the crazy infotainment system in some random weekly driver. Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources.

4 thoughts on “Capacity Unconstrained: Kia Plans Mexico Factory

Leave a Reply