* Carmaker picks Monterrey, Mexico for new plant - source
* Needs 21 months to start production after groundbreaking -
* New factory will build small vehicles - source
* Capacity set at 300,000 vehicles a year - source
* Carmaker mulling means to solve U.S. supply shortage -
(Add comments from sources, background)
By Hyunjoo Jin
SEOUL, June 2 Kia Motors Corp plans
to break ground soon on a new plant in Mexico, two sources
familiar with the matter said, a further sign that the company
and its affiliate, Hyundai Motor Co, are easing an
unofficial moratorium on capacity growth.
The plant, to be built in Monterrey, will have a capacity of
300,000 vehicles and initially produce two small cars, one of
the sources told Reuters. The facility would help meet demand in
the United States, where Kia's lone plant runs at full speed.
The sources declined to be identified because the plans are
not yet public. Asked about a new factory in Mexico, a company
spokesman told Reuters Kia is considering various options to
resolve capacity constraints in the United States, but no
decision had been made.
About two years ago, Chung Mong-koo, chairman of Hyundai
Motor and its Kia affiliate, unofficially halted new capacity,
worried that the South Korean group risked running into the kind
of quality issues that dogged Japanese rival Toyota Motor Corp
when it grew too aggressively in the 2000s.
The Kia spokesman declined to comment on whether Chung had
eased his ban on building new factories.
Five people familiar with the group's plans told Reuters
early this year that Hyundai and Kia were again looking to
invest in new manufacturing capacity, running feasibility
studies in promising markets such as Mexico.
In March, Hyundai said it planned to build a new plant in
Chongqing, in southwestern China.
"Hyundai and Kia are now more flexible with building new
plants as their global manufacturing capacity has reached
limits," said Suh Sung-moon, an auto analyst at Korea Investment
& Securities. "Without new factories, the duo is expected to
lose market share in 2016 for the first time in over a decade."
Hyundai and Kia, which together rank fifth in global car
sales, are under pressure from a firming local currency which
erodes its earnings, and suffer from recurring industrial
disputes and high labour costs at home.
Kia has a factory in the U.S. state of Georgia, which
produces the Optima mid-sized sedan and the Sorento sport
utility vehicle (SUV) as well as Hyundai's Santa Fe SUV. Hyundai
has one factory in Alabama.
Both plants are running at full capacity and are unable to
keep up with demand in a recovering U.S. market, company
executives have said.
The plant in Monterrey would be Kia's first in Mexico and
production would begin about 21 months after groundbreaking, one
of the sources said.
(Editing by Tony Munroe and Matt Driskill)