Hyundai develops $5,000 car for China and India

BEIJING -- Hyundai Motor Co. is developing a $5,000-$6,000 (35,000-42,000 yuan) small car especially for China and India.

The car, code-named RB, is under development in Hyundai's r&d center in South Korea. Production in China and India is expected to start in 2010, says Jake Jang, a spokesman of Hyundai Motor.

With India's Tata Nano priced $2,500 (17,541 yuan) and China's Chery QQ starting at 33,000 yuan ($4,712), global automakers face increasing pressures to cut costs for their products sold on emerging markets like India and China.

China could surpass U.S. and become Hyundai's largest overseas market by 2010, says Jang.

With a total investment of 12 billion yuan ($1.71 billion), Hyundai's second plant started production last week in Beijing. Hyundai plans to double its production capacity in China to 600,000 units in 2010.

Hyundai's sales target of 2008 in China is 380,000 vehicles. Combined Hyundai and Kia brand sales fell 16.5 percent in 2007 to 343,210, according to Automotive Resources Asia, a unit of J.D. Power and Associates.

In India, Hyundai sold 196,421 locally-made vehicles last year, according to Automotive Resources Asia.

Meanwhile, Edward Yoon, the chief financial officer of Hyundai Motor (China), says the newly launched Elantra Yuedong has 87 percent "local" content, and the old Elantra model has more than 90 percent.

By local content, Yoon mainly refers to parts sourced from Korean suppliers' plants in China. To date, 117 Korean suppliers have established plants in China after Hyundai entered China in 2002.

Asked whether his company would source components from Chinese suppliers for the RB, Edward Yoon, the chief financial officer of Hyundai Motor (China) says: "We should do that."

He doesn't provide cost estimates for the RB.

"If Hyundai plans to make a very low-cost car and compete with local automakers such as Chery and BYD, it needs to further open up its (Korean-dominated) supply system," says Duan Chenwu, an analyst with Global Insight's Shanghai office.

Chinese suppliers are capable of providing interiors, mirrors, bumpers, and injection molded parts with good quality and at lower prices than Korean suppliers, says Duan.

Hyundai manufactures 1.4- to 2.7-liter engines in its two engine plants in Beijing, and it sources manual transmissions and four-speed automatic transmissions from Hyundai Mobis' operations in China. It imports some high-end engines and transmissions from South Korea, say industry sources.

Yoon says Hyundai has made some efforts to increase purchasing from Chinese suppliers. For instance, it has started to allow some Chinese companies to bid for the supply of some components along with Korean suppliers, he adds.

Yoon says, "We have to do this to cut costs."