Hyundai Under Pressure, Clashes With China Partner

By Robert Zebney, International Business Writer

Hyundai Motor Co. has seized production at its Cangzhou plant in China Tuesday. This comes after a Chinese supplier stopped delivery of critical air intake systems to Hyundai. Production stopped due to delayed payments to a German supplier from Hyundai’s local venture.

Hyundai is no stranger to issues within the Chinese market. In the month of August Hyundai halted production on four of its Chinese plants for a full week following a French refusal to supply fuel tanks for production. Similar to their most recent road block, the French situation was also due to delayed payments.

The delayed payments came after Beijing Hyundai’s sales dropped dramatically in the first two-quarters, nearly 42 percent. This is in part due to political tensions between neighbors South Korea and China over a new missile defense system put in place in the Korean peninsula. Sales of Hyundai have also suffered because of massive discounts implemented by rival manufacturers in the Chinese market as well as Hyundai having a sedan-heavy lineup in an increasingly popular SUV Chinese market.

Beijing Hyundai is a fifty-fifty joint venture between Hyundai Motor Co. and BAIC Motor Co. The joint venture owns five factories in total. One of these plants is not yet operational, three are currently operating normally, and the fifth facility has recently seized production.

Parts sourced in South Korea are thirty to forty percent higher in cost compared to those sourced in China, where most parts are produced currently. “BAIC wants to solve this aggressively and is asking Hyundai to change its sourcing strategy significantly and immediately,” said the head of a Hyundai supplier in Seoul. Hyundai, on the other hand, is looking for a long-term solution to the issue. Hyundai wants to solve the problem over five to ten years and do so in phases. South Korean firms must weigh their options between cheaper, less expensive Chinese suppliers and European competitors who are far more technologically advanced but very expensive in comparison.

Another headache for Hyundai has been increased competition from Chinese auto makers, a currently booming industry in the country. Changan Automobile Co Ltd and Great Wall Motor Co Ltd have both expanded tremendously in China and are two heavy hitters in competition with Hyundai. Often these manufacturers have taken advantage of other global automakers’ expertise, logistics, and their extensive engineering know-how. This has helped them to produce some of the best-selling and most popular SUVs in the country.

Hyundai has a plan to turn their negative trajectory in China around, however. Last week, they replaced the head of its Chinese operations and scheduled to begin assembly of its premium Genesis vehicles in China. Also, Hyundai plans to speed up the development and launch of a new SUV for the market. Both SUVs and premium sedans are an expanding sector of the automotive industry in China, one of which Hyundai plans to capitalize.

Only time will tell how well Hyundai will respond to their troubles in China and if they can solve the issues with their parts suppliers.

 

A version of this article appeared in the Tuesday, September 12th print edition.

Contact Robert at

robert.zebney@student.shu.edu

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