Hyundai boosts Europe ambitions

The Wall Street Journal - Hyundai Motor Co. plans to add a third shift this summer at its plant in the Czech Republic due to surging demand and create 1,000 new jobs there, marking the latest sign that the South Korean auto maker is plotting further inroads in Europe.

"This extra capacity will cover the predicted increase in demand for our cars built in Europe," Hyundai's chief operating officer for Europe, Allan Rushforth, said in an interview ahead of this week's Geneva motor show.

Production capacity at the plant will increase by about a third to 300,000 vehicles a year through the additional shift. The extra shift will also allow Hyundai to bring production of its ix35 compact sport-utility vehicle to the plant in Nosovice from a plant operated in Zilina, Slovakia, by its affiliate Kia Motors Corp. Hyundai owns a 38.7% stake in Kia, and together Hyundai and Kia would be the fifth biggest auto maker in the world by sales volume.

"We will continue to review our production capabilities here to ensure growth targets can be met," Mr. Rushforth said. "At present there are no plans" for further production facilities in Europe, he added. The decision to ramp up production in Europe reflects Hyundai's ambition to increase its presence in the region and develop a bigger global footprint. Although its presence in Europe is still relatively small, its lineup of inexpensive but reliable cars has helped it make big gains.

Hyundai's European market share rose to 2.6% last year from 2.4% in 2009, according to the European Automobile Manufacturers Association, and the company is targeting a 3% share for this year. Its unit sales rose 4.7% to 358,284 vehicles in Europe last year, a period when the overall European car market contracted.

Hyundai's plan will add to the pressure many auto makers face in Europe as overall demand for new cars in the region remains anemic. Fitch Ratings expects growth in Asia and a recovery in North America to foster growth for global auto makers this year, with Europe anticipated to face a decline of up to 2% compared to last year, according to a recent report.

Car makers that rely on sales in Europe are often struggling to utilize their plants sufficiently. Only those with a significant presence in dynamic markets like China have been working full tilt in recent months to produce cars for export.

Hyundai is looking to move into higher-end cars, and plans to unveil the i40, a new four-door coupe, on Tuesday at the Geneva motor show. The i40 will be Hyundai's first move into the fiercely competitive segment of midsize cars in Europe, where it will compete with the likes of Volkswagen AG's Passat and Ford Motor Co.'s Mondeo.

In 2010, about 896,000 vehicles were sold in this segment among mass-market brands in Europe and Russia, according to IHS Global Insight. Mr. Rushforth hopes to reach sales of 60,000 cars with the i40 in 2012, pulling it close to Toyota Motor Corp.'s Avensis, which accounted for 69,000 vehicles last year in the region. The wagon version of the i40 will come out this summer and the sedan at the end of the year, he said. Mr. Rushforth declined to disclose the price. Industry observers say the average price for a car in the segment is €20,000 (about $27,500).

Hyundai's drive into the more lucrative end of the market has already begun in the U.S. with the sale of the Genesis sedan and the more luxurious Equus.

Mr. Rushforth said it was "difficult" to make a profit in Europe, but didn't elaborate on financial details. Car makers' profit levels in Europe have been a persistent concern for investors in recent years as the industry is still squeezed by significant overcapacity.

European auto makers avoided large-scale plant closures during the dramatic industry downturn in 2009, partly through support by individual states.

Hyundai was able to keep its cost base under control, thanks to its global manufacturing footprint, Mr. Rushforth said. Some small cars sold in Europe, like the i10 city car, are built in India, for example. With the Czech plant running at full steam, the upcoming i40 will be imported from South Korea.