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October 19, 2004

UK: Hyundai/Kia attracting foreign suppliers

Hyundai will have more global capacity volume than Honda or PSA by 2011, estimate forecasters at PwC AUTOFACTS, with global production forecast to exceed 4 million units, up from 2.7 million in 2003. Hyundai is currently number nine in the world volume rankings, but it has a long standing goal to be the world’s number five vehicle manufacturer.

By bcusack

Hyundai will have more global capacity volume than Honda or PSA by 2011, estimate forecasters at PwC AUTOFACTS, with global production forecast to exceed 4 million units, up from 2.7 million in 2003. Hyundai is currently number nine in the world volume rankings, but it has a long standing goal to be the world’s number five vehicle manufacturer.

At present 87% of Hyundai Group’s production is in Asia, but as the group develops its brands and sales grow in North America and Europe, the group’s global assembly footprint will start to reflect that. Hyundai is planning significant production growth in North America, Europe and China.

The new plants are a major opportunity for European and North American suppliers to develop or further relationships with the Hyundai group.

However the biggest beneficiaries of Hyundai/Kia’s expansion are the group’s existing core suppliers.

Hyundai Mobis is the key tier 1 designer and supplier of chassis and interior modules and systems for Hyundai and Kia. It is heavily involved in off-line assembly and supply chain management for the group and over the last few years it has taken over the OE and aftermarket components logistics operations of Hyundai and Kia worldwide and has established a global network of component distribution centres.

Mando Corporation is also partnering Hyundai and Kia closely in its global expansion and expanding its chassis and electronics module capabilities accordingly.

Hyundai is in the process of reducing its suppliers from 800 to 400 over a five-year period. Increased use of modules is one way that it will achieve this goal. The current level of modularity achieved on Hyundai and Kia models is limited to 10-25%. The two companies plan to expand the level to 40% by 2006. Hyundai will be applying its 40% modularisation rate to its Avante HD, the successor to the Avante XD, while Kia is planning to expand its modularity level with its SA, a light vehicle model, the successor to the Visto.

SupplierBusiness.com’s survey of Hyundai suppliers received far fewer responses than our surveys of the Big Three in North America and the European makes, or Toyota and Nissan, reflecting the relatively recent emergence of Hyundai as an international producer.

Of over 30 respondents only seven answered all of the questions.

Among suppliers responding, Hyundai’s strong volume growth over the last few years was reflected in the fact that most reported that the attractiveness of working with Hyundai/Kia had increased over the last two years.

All the suppliers that completed the questionnaire said the opportunity for making an adequate return on Hyundai/Kia business had stayed the same or increased, and suppliers’ level of trust in Hyundai/Kia as a commercial partner had stayed the same or increased.

Hyundai/Kia’s purchasing policy appears to have been quite stable over the last few years.

Most suppliers reported that, in common with other carmakers, Hyundai/Kia had increased its demand for price reductions over the last two years, but most suppliers also recognised the company had increased its technical competence.

Most suppliers reported that the quality demands of Hyundai/Kia had stayed the same, although some reported an increase in the quality demands placed upon them.

Executives at Hyundai recognise that they may need to do more to improve perceived quality, to get a long-term payback from the investment that the company is making in establishing itself as a significant brand name in developed markets.

Suppliers reported requests for longer warranty periods and guarantees of reliability but also that the company had not become less willing to reward cost saving ideas, nor become less willing to pay for development costs over the last two years.

The only major problem area most suppliers identified was that the quality and stability of volume planning at Hyundai/Kia has deteriorated over the last two years.

SupplierBusiness.com

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