Chairman Chung Mong-koo puts thoughts of jail behind him as he tours Hyundai-Kia’s new central European manufacturing powerhouse. Mark Bursa reports
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Hyundai Group’s bid to become a fully-fledged European automaker took two major steps forward last week, with the official opening of the Kia factory in Zilina, Slovakia, and a groundbreaking ceremony at the Hyundai Motor Manufacturing Czech (HMMC) plant, across the border at Nosovice in the Czech Republic.
The Zilina opening was purely ceremonial – the plant has been cranking out the new Kia Cee’d hatchback since the back end of last year. But the start of work at Hyundai’s controversial and delayed plant, a twin of the Kia factory just 60km away, is perhaps the more significant step.
When both plants are running at full capacity by the end of the decade, the Korean group will have a European capacity of 600,000 units. Kia said Zilina would be running at its full capacity of 300,000 within 18 months. Significantly, these plants are not designed to build low-cost models for the growing Central European market. The cars – like Cee’d and its new Hyundai sibling, the i30, are aimed squarely at sophisticated western Europe.
“Our low-cost production hub is not here – it’s India,” said Hyundai communications director Oles Gadacz. “We build Atos/Amica there and we’ll be locating all Getz production from Korea to India by the end of the year.”
Perhaps the biggest surprise of the week’s celebrations was the presence at both events of Hyundai’s beleaguered chairman, Chung Mong-koo. Only a pending appeal is keeping Chung out of jail: he was handed a three-year sentence after being found guilty of embezzlement last year. Obviously the Korean authorities don’t expect him to flee from justice, like his former opposite number at Daewoo, Kim Woo-choong.
Perhaps the willingness to let Chung travel is an indication that he’ll be able to win his appeal. Korean business leaders have been subject to state crackdowns in recent years in a bid to clean up corruption within the Chaebol. But the businessmen argue that their actions turned Korea into an economic powerhouse, and the benefits they have brought to the economy more than outweigh a few dodgy deals.
Nevertheless, it was incongruous to see Chung striding to the stage at Nosovice, to the strains of ‘Land of hope and glory’. Cynics in the audience might have imagined ‘I fought the law’ or ‘Jailhouse rock’ as a more appropriate soundtrack.
Chung delivered a brief speech, and not surprisingly, was unavailable for the world’s media. He said: “With Hyundai’s accumulated manufacturing experience in Korea, China, the USA, Turkey and India, we have the capability to build another truly state-of-the-art manufacturing facility that will set the standard for efficiency and productivity.”
At EUR1.1bn, the Nosovice plant is the single biggest overseas investment project in the Czech Republic, which fought hard to win the deal. Hyundai expects to shave a couple of months off the 26 months it took to build the Kia Zilina plant, and Nosovice is expected to be up and running in just 24 months, with full-scale production starting in the first quarter of 2009.
Whether or not Chairman Chung will be able to schedule the ribbon-cutting ceremony into his 2009 diary remains uncertain. But you wouldn’t bet against it.
Nosovice will build three models: the i30 hatch and wagon, the Tucson compact SUV, along with a new compact MPV, codenamed YN, in 2011. This third model will swell production from 200,000 units a year to 300,000. Hyundai’s European sales are forecast to grow to 620,000 units in 2010 compared with around 400,000 in 2006 including sales in Russia and Turkey.
Kia sold 275,000 cars in Europe in 2006 and hopes to reach sales of 309,000 this year, according to Kia Motors Europe senior vice-president Jean-Charles Lievens. The Zilina plant began producing 5-door Cee’d last December, and later this year will begin building wagon and 3-door versions of the car, as well as the Sportage compact SUV. The Kia models at Zilina share the same platforms as the Nosovice Hyundais, leading to the possibility of cross-supply and economies of scale for suppliers serving both plants.
Kia claims Zilina is one of Europe’s most productive plants, turning out 100 cars per year per employee. Nosovice, built to the same blueprint, will match that level very closely.
Along with established Czech automaker Skoda and the PSA-Toyota TPCA plant at Kolin, near Prague, the Czech Republic will be churning out more than 1.2 million cars a year by 2011 – a comparable total to Italy. Nosovice alone will boost the country’s GDP growth by up to 2.5%, according to estimates by CzechInvest.
And the plant will create substantial employment in the country – Nosovice will employ around 3,000 workers and will create a further 4,000 or so jobs within supplier plants being set up to serve the factory. Korean suppliers, including Hysco and Mobis, are planning to set up supplier plants on the main Nosovice site, while others including Dymos, Plakor, Seyong and Donghee are looking to build new facilities nearby.
All this explains why the Czechs fought so hard to get the plant. Hyundai also considered sites in Hungary, Poland and Slovakia, and securing the Nosovice site was a fraught and controversial process. Unlike Zilina, a former air base, the Nosovice land was privately owned farmland, and some of the landowners proved difficult to dislodge, leading to delays.
At one point, the local authorities had to tell chairman Chung they could not deliver the land – though eventually the most obstinate landowners were shifted – at a price. They received a price per acre of 15 times the nominal value of their land. The Czech authorities have contributed 15% of the total cost of building the plant, mainly through land purchase, in line with EU regulations.
The Czechs have also agreed to spend EUR1.42bn between 2007 and 2013 on the local road and rail infrastructure, connecting the factory to the rail network and improving roads around the site. A fleet of buses to get workers to the site is also being provided. Covering such costs was among the sticking points in final negotiations with Hyundai, according to local reports.
The Czechs were prepared to spend in order to secure the deal, however, despite concerns that the sudden influx of automotive manufacturing to the country could be a double-edged sword. The automotive industry will employ around 130,000 people in the Czech Republic once Nosovice is up and running, leading to speculation that the economy is becoming over-dependent on the auto industry and raising fears of a looming skills shortage in the country.
Competition for jobs is forcing up wages – both Skoda and TPCA have recently handed out pay rises well ahead of the local inflation rate. The cost advantage of the new Central European EU member states may be eroded sooner than was previously thought, as Czech wage levels are already catching up fast with western pay.
Skoda Auto chairman Detlef Wittig is on record as saying Nosovice could hurt the Czech automotive sector by “strengthening the Czech currency and the possible shortage of people and subcontractors”. Hyundai argues that it has located its plant in the eastern part of the Czech Republic, where unemployment is high, at 12%, which will allow it to offer lower wages than the other Czech-based car firms.
Mark Bursa
See also: SLOVAKIA: ‘Grand opening’ ceremony for Kia plant
SLOVAKIA: Kia mulls 7-year warranty on European-built SUV
