Kia Motors plans big changes
By Gong Zhengzheng (China Daily)
Updated: 2004-07-13 08:41

Kia Motors, the South Korean carmaker controlled by Hyundai Motor, plans for a fivefold increase in investment with local joint venture partners and to quadruple its annual production capacity in China by 2008.

Kia and two Chinese companies - Dongfeng Motor Corp and Yueda Group - will lift their investment in China to US$648 million by 2008 from US$130 million so far, said Chung Dal-Ok, president of the joint venture Dongfeng Yueda Kia.

The joint venture, set up in 2002 in East China's Jiangsu Province with a registered capital of US$70 million, will have a total annual production capacity of 400,000 cars by 2008, up from more than 100,000 units now, Chung said.

Kia, Dongfeng and Yueda have a 50, 25 and 25 per cent stake in the joint venture respectively.

Kia's expansion plan defies growing concerns of excessive auto-building capacity in China where car sales have experienced consecutive declines over the past three months as most of world's automakers are constructing new plants.

"Many manufacturers in China will go bankrupt or be merged due to overcapacity. But we do not worry as we have strong ability to survive fierce competition," Chung said.

Kia will contribute at least 400,000 cars to Hyundai's ambitious plans to produce 1 million cars in China annually by 2010, he said.

Hyundai announced last month that it will add an investment of US$740 million in China by 2007.

Hyundai and Beijing Automotive Holdings Corp run a joint venture in China's capital with a planned annual capacity of 600,000 vehicles by 2008.

Chung said that Kia would introduce four new models, including a sport utility vehicle (SUV), to Dongfeng Yueda Kia from 2005 to 2008. The joint venture will start to produce Kia's 2.0-litre Optima sedan during the fourth quarter of this year, he said.

The joint venture launched a 3.5-litre Carnival multi-purpose vehicle (MPV) last Thursday.

"An important reason for the launch of Carnival is to change the joint venture's image in the public perception that it is only able to produce low-end cars," Chung said.

Zhang Xin, an auto analyst at Guotai & Jun'an Securities Co, said: "Kia will have to introduce its full-range product portfolio to China if it wants to achieve its target, because growth potential in the low-end car segment is limited."

"But it is hard to say now whether Kia will succeed in China as competition in the market is turning red hot and it has much less strength than the heavyweights from Europe, Japan and the United States."

"Kia should be cautious in expanding in China where car sales will not have the sensational growth enjoyed during the past two years," Zhang said.

Car sales in China grew by more than 50 per cent in 2003 and 2002.

Dongfeng Yueda Kia's sales surged by 40.2 per cent year-on-year to 36,562 Cheolima compact sedans during the first half of this year.

It aims to sell 80,000 cars this year, up from 50,000 units last year.

"However, the whole car market in China will remain at a low ebb if the government's policies to cool the overheating economy continue," Chung said.

Sales of domestically-made passenger cars in June dropped by 7.1 per cent month-on-month to 164,850 units.

"The car sales slowdown is mainly triggered by consumers' delays in buying because of government controls on car loans and the frequent price cuts of many producers," he said.

Chung vowed not to slash Cheolima prices this year because "that would be unfair to our (existing) customers", despite price cuts of rival models, such as Shanghai General Motors' Buick Sail, and Palio and Siena of Nanjing Fiat.

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