Two of the biggest South Korean automakers, Hyundai Motor Co. and Kia Motors Corp. have announced plans to invest $3.1 billion in the United States during 2017-2021. With this announcement, Hyundai and Kia have become the latest automakers to increase investment in the US in order to avoid high import duties on cars imported to the US from Mexico. The combined investment by Hyundai and Kia is approximately 150% of their investments in the US during the last five years. Between 2011 and 2016, the two companies invested $2.1 billion in US plants. The new investment for the 2017-2021 period is to be $3.1 billion. The investment will be directed towards constructing a new Hyundai plant for the production of a new SUV model along with premium models of the Genesis line.
The president of Hyundai Motor Co. Chung Jin-haeng anticipates growth in the American economy to stimulate demand for newer models. Therefore, expanding production in the US offers potential to the automaker in terms of increasing market share as well as profitability.
Kia and Hyundai are not the only automakers making fresh investments in US markets. Toyota, Ford and Fiat are some of the automakers that have decided to expand production in the US after receiving threats from the new administration about 35% import duties levied on vehicles imported into the US from production plants based in Mexico. Fortunately, Hyundai and Kia have not received such direct threats from the new administration. In return, these automakers might be able to influence the administration to reduce corporate taxes and relax regulations on fuel economy.
The announcement to expand investment in the US by Hyundai and Kia comes at an opportune time given the political climate and the state of both companies’ operations in the country. The investment will not only give the companies political leverage with the new administration; it will also serve to expand production beyond the maximum capacity at which production plants have been operating.
The long-term plan for GM is to pump in an additional $1 billion worth of investments in US plants. The investment will likely contribute to maintaining 1,000 jobs throughout the country. Official confirmation of this development has not been made yet.
Approximately 35% of the $3.1 billion amount is likely to be invested in innovative technologies including self-driving automobiles and environmentally-friendly vehicles. The remainder of the amount would go into expanding production capacity and introducing new models.
With plans to expand production in the US, Hyundai is pondering on increasing the size of its Montgomery, Alabama plant where the popular Elantra and Sonata are produced. Current annual production at the facility is 370,000 cars which is the maximum capacity. Kia’s West Point, Georgia facility is also producing cars at its maximum capacity of 360,000 units.
Eight weeks prior to the US election, Kia set up a new production line in Mexico with a capacity to produce 200,000 cars annually at a cost of $3 billion. The company planned to expand production capacity by 100,000 units in 2017 and by another 100,000 next year.
Kia maintains flexibility about its investment plans in Mexico. Plans to include an SUV model to existing production lines in Nuevo Leon state are unconfirmed. At the same time, the company is firm about its goal of exporting 80% of the output from its Mexican production plants to Latin American and the US.
For the moment, Kia and Hyundai have not announced any plans to expand their investment or transfer jobs to Mexico, thereby ensuring that US investments stay in place.
Given the strategic importance of the US market to both companies, it is essential that they are able to stay in the market over the long-term for their global success. The companies will therefore continue to play by the rules of the government.