Hyundai Motor finally chose its European car plant site on Tuesday: Slovakia won over Poland as home to a €700 million ($US870 million) investment as South Korea’s top car maker strives to build a low-cost foothold in Europe.
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A Reuters report said the factory, with capacity of 200,000 cars per year, will produce Kia-brand vehicles in the northern city of Zilina and will make Slovakia the world’s number one car producer per capita when it comes on line in 2006.
The news agency noted that the decision marks the second time Slovakia beat out its larger northern neighbour for a major car assembly investment — it attracted a similar €700 million PSA Peugeot Citroen plant last year. The news also comes as a blow to Poland’s leftist government, Reuters added.
“We will introduce small- to mid-sized passenger cars that cater to European consumer tastes,” Kia Motors Corp., a unit of Hyundai, reportedly said in a statement on Tuesday, adding: In order to have an edge in quality and prices, we will be going along with seven or eight parts suppliers including Hyundai Mobis.”
Reuters said the move is part of Hyundai’s strategy to boost its presence in Europe after its success in the US market. Kia aims to more than double its European sales to 500,000 in 2008 from an estimated 240,000 this year, which would be 21% of Kia’s forecast for total sales of 1.16 million in 2004.
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By GlobalDataDoubling its output would let Europe rival the United States as Kia’s biggest overseas market and help offset slumping sales at home, where big credit card debts have hit consumer spending, the report added.
Reuters said the €700 million, 200,000-car-per-year figures were lower than an originally reported €1.1 billion and 300,000 units, but a Kia official reportedly said the firm could expand the factory later.
The report said Slovak financial markets had nervously awaited the decision in anticipation that the deal would cause a large inflow of funds that would buoy the currency and boost exports.
Shortly after the announcement, ratings agency Standard and Poor’s raised its foreign currency ratings for Slovakia to BBB+ from BBB, citing the country’s economic reform record.
A British newspaper at the weekend highlighted the low wages and generally poor standard of living for people in Slovakia as part of an article examining likely worker migration after 12 new countries, including Slovakia, join the European Union in May. The announcement is likely eventually to improve the lot of workers selected for a job at the new Kia plant, and in supporting supply and service industries.
Reuters said the crown weakened initially after news Slovakia had been picked for the new car factory amid fears the opposition could launch a no-confidence vote against reformist finance minister Ivan Miklos. The currency later rebounded.
Reuters noted that Hyundai, 10% owned by DaimlerChrysler, had narrowed the choice for the factory to Slovakia and Poland, which will also join the EU in May.
The report said both straddle a divide between mature western markets and the quickly growing east, where demand for consumer goods such as cars is rising ahead of accession.
Both also reportedly offered a variety of incentives including tax holidays and free land to win the plant, which is to be one of the largest investment projects in central Europe this year.
Reuters said business-friendly labour laws and flat 19% taxation for firms and workers alike have made Slovakia a favoured investment destination, particularly in its booming car sector.
With average wages at $US520 a month, the small country of 5.4 million people has the cheapest workforce in central Europe, while high unemployment of 16% – second in the region only to Poland’s – ensures a wide labour pool.
Reuters added that Slovakia leads the region with economic growth of around 4%, led by a Volkswagen plant outside the capital that assembled 281,000 cars last year [many Golfs are made there], while, as a whole, the car industry accounts for 30% of exports.
Analysts told Reuters the news could offer prime minister Mikulas Dzurinda’s centre-right minority government some respite from criticism that a wave of shock-treatment austerity measures has done more to hurt the poor than to help the economy.
“More investors should be coming, helped by Hyundai and EU membership, and wages should pick up … I’m sure the government will use this as a PR tool,” ING chief economist Jan Toth told Reuters.
The news agency noted that Poland’s government had thrown its heart into the race, seeking to create a reputation for investor-friendliness and show it is committed to tackling 20% unemployment, but its crumbling roads and scarce highways – it has only 400 kilometres (250 miles) of them – impose a logistical quagmire on manufacturers.
Investors also gripe that Poland is plagued by red tape, bureaucracy, high labor costs, among other factors, Reuters added.
“Hyundai went where the better infrastructure conditions are,” Polish economy minister Jerzy Hausner reportedly told public radio, adding: “Labour costs were definitely a problem too – including both wages, which I don’t think should be lowered, and the tax burden on wages that results from very high social transfers.”
Reuters said construction of the factory is expected to begin this year and Hyundai plans to hire 2,400 workers.
