Kia cashing in on China demand for small cars

Kia Motors Corp has joined Hyundai Motor Co in raising its 2009 China sales goal as tax cuts spur demand for smaller vehicles in Asia's biggest auto market.

South Korea's second-biggest carmaker raised its target about 8 percent to 200,000 from 185,000, So Nam Young, Kia's head of China sales, said yesterday in a Shanghai auto show interview. Hyundai has raised its target 11 percent.

Kia's first-quarter retail China sales jumped 27 percent after the government cut taxes on cars with engines of 1.6 liters or less to revive flagging automobile demand. The Seoul-based automaker will also add the Forte and Soul vehicles, which both qualify for the tax break, later this year.

A model poses with a Kia Motors Corp Forte vehicle at the 2009 Shanghai auto show. [Bloomberg News]

"That segment is showing the strongest sales in China," said Choi Dae Sik, a Seoul-based HI Investment & Securities Co analyst. "New models in the segment will surely help Kia."

Kia's Dongfeng Yueda Kia Motors Co venture may claim a 3.5 percent share of China's passenger-car market this year, compared with 2.6 percent in 2008, So said. The venture sold 45,545 vehicles in the first quarter. Kia sold 142,008 units last year in China.

"Sales are getting a real boost from the tax reduction and we expect the growth will accelerate in the second half," So said. The carmaker's China stockpile has fallen to 1.5 months of sales from a usual level of 2.5 months due to demand for models including Cerato and Rio small cars, he added.

Dongfeng Yueda Kia will make Forte small sedans, due to go on sale in June, and Soul compact crossover vehicles, which will enter the market in the fourth quarter. Kia has a 50 percent stake in the venture. The rest is evenly split between Dongfeng Motor Corp and Jiangsu Yueda Investment Co.

Kia expects to sell more than 100,000 Fortes a year in China and 50,000 Souls, So said. The demand may cause Kia to fully utilize its maximum capacity in China of 430,000 vehicles a year by the end of 2010, he added. Kia opened a second China plant at the end of 2007.

The Forte will compete with Toyota Motor Corp's Corolla sedan, General Motors Corp's Buick Excelle and Honda Motor Co's Civic, according to Kia.

To boost sales, the carmaker has increased marketing and it plans to increase the number of its dealers to more than 300 by next year from about 170 at the end of 2007.