Hyundai faces uphill battle in China

SHANGHAI -- Sliding sales and intense competition have finally roused Beijing Hyundai, a joint venture of Hyundai Motor Co and Beijing Automotive Industry Corp.

In early April, after a lull of more than a year, Beijing Hyundai launched a new model, a new Elantra, in a new plant in Beijing.

But neither the new model nor the new plant will quickly brighten the prospects of the Hyundai brand in China. The competition is too intense.

Entering China in 2002 by partnering with BAIC, Hyundai quickly became one of the besting selling brands in the market by 2006.

But this accomplishment led the management then to feel no immediate need to roll off new models in China. They believed the momentum of its existing brands had built would sustain for a while.

They couldn't be more wrong. New models are essential to win market share in China's increasingly competitive market.

With no new models launched in 2007, Hyundai soon started losing market share in China. Combined Hyundai and Kia brand sales fell 16.5 percent in 2007.

Now, Beijing Hyundai is placing much hope on the new Elantra model, a mid-sized sedan selling for 100,000 yuan-130,000 yuan ($14,300-$18,600).

Cars priced at this range are experiencing robust sales growth in China. But competition is red hot in this segment. The new Elantra will have to compete with at least 20 rivals. There is no guarantee that it can win.

Moreover, the problem of overcapacity is looming at Beijing Hyundai. The decision to build a $1.2 billion second plant was made in 2006. Its two plants combined are now capable of producing 500,000 cars a year, which will be further increased to 600,000 cars by 2010.

Beijing Hyundai sold 231,137 cars in 2007. Few industry observers expect it to achieve its 2008 sales target of 380,000 cars, let alone to operate anywhere near full capacity.

That said, it is better to be late than never. Because of what it has done lately, Beijing Hyundai is better positioned than before for a long-term recovery.

As reported in this week's Automotive News China, following the new Elantra, the company is now developing a $5,000 or $6,000 small car for China and India. Other models are also said to be in the pipeline.

Beijing Hyundai needs to remain responsive to the constant changes in China's dynamic auto market.