SEOUL (Reuters) - Hyundai Motor Co is considering plans to suspend production at its oldest plant in China, the South Korean carmaker said on Wednesday, as it reels from tumbling sales and massive overcapacity in its biggest market.
The move by Hyundai, which together with affiliate Kia Motors was the No.3 automaker in China until 2016, highlights the reversal of fortunes of China’s auto industry, which suffered its first contraction in decades last year.
Hyundai and Kia face major risks from the industry’s slowdown, with the duo already grappling to fend off competition from Chinese rivals and global automakers in the world’s biggest vehicle market.
“Hyundai Motor is reviewing production to enhance competitiveness and profitability,” the company said in a statement, adding that the plan includes “suspension, not closure of Plant 1 in Beijing”.
The company, which has three manufacturing plants in the city, said that it has yet to decide when a suspension would start. However, the Korea Economic Daily newspaper reported that suspension could start as early as next month.
All of Hyundai’s five factories in China are operated by its Chinese joint venture with BAIC Motor Corp, at which about 2,000 employees have taken voluntary retirement or transferred to other factories, the statement said.
Hyundai Motor shares rose as much as 3.6 percent on Thursday.
“My view is that Hyundai is taking steps to closing the plant. It has been dragging its feet over a shutdown, and it is positive that they are finally taking action,” Samsung Securities analyst Esther Yim said.
Hyundai’s redesigned Sonata sedan, which was unveiled on Wednesday, has also sparked hopes that the automaker would be able to regain ground in its mainstay sedan segment, she said.
Hyundai’s sales in China amounted to only half its total production capacity in the country last year.
China’s auto industry has been slowing after a period of strong growth, hit by a weakening economy and the fallout of trade frictions with the United States.
For Hyundai, its troubles have been exacerbated by a diplomatic row between Seoul and Beijing that hit demand for South Korean products in China.
A lack of attractive models and strong branding also makes Hyundai vulnerable to competition from both Chinese and global carmakers, analysts and dealers have said.
Hyundai will start to produce its new ix25 SUV at its latest plant in Chongqing from September, according to an internal document seen by Reuters. The current ix25, Hyundai’s second-biggest selling SUV, is made at the Plant 1 factory built in 2002.
Hyundai Motor CEO Lee Won-hee last week said the company was considering cutting capacity in China, sources said.
Reporting by Hyunjoo Jin; Additional reporting by Hayoung Choi in Seoul; Editing by David Goodman and Richard Pullin