South Korean manufacturing giant Hyundai has picked Slovakia as the site for a new $870m (?466m) car plant, one of the biggest deals in the car sector this year. The factory, which will open in 2006, is intended to produce up to 200,000 vehicles a year under Hyundai’s Kia brand. The north Slovak city of Zilina beat a Polish location in what had been a long-running contest to get the plant. Both countries offered incentives for the investment, but Slovakia boasts slightly lower costs for manufacturers. In fact Slovakia has arguably the lowest business cost base of any of this year’s new EU members, and enjoys a strategic location on the border with Austria. All of which means that it is rapidly converting itself into an auto manufacturing hub since this is the second big car project that Poland has recently lost to Slovakia: last year, France’s PSA Peugeot Citroen said labour costs had persuaded it to pick Slovakia for a new plant roughly the same size as Kia’s.

This of course is neither outsourcing, nor is it job-migration. But it certainly is a news item which doesn’t go down too well here in Spain, which feels it is rapidly losing its pride of place as the European car components centre.

Hyundai Motor Group will build its planned European car plant in Slovakia, dealing a blow to Poland, which had also competed for the investment.

The decision by South Korea’s largest carmaker ends months of aggressive lobbying by the two countries to win one of the biggest foreign investments in central Europe this year.

The plant – to be located in Zilina, northern Slovakia – is the latest step in Hyundai’s rapid global expansion, following the opening of factories in the US and China over the past two years.

Officials at Kia Motors, a subsidiary of Hyundai, said on Tuesday it will invest a total of E700m ($870m) in the plant and begin construction this year. The company said the factory aims to achieve annual output of 200,000 cars and start mass production in 2006.

Hyundai is the latest in a series of car manufacturers to build factories in central Europe, attracted by the region’s low labour costs and its closeness to the big markets of western Europe.

For Poland, the defeat adds to doubts about the country’s competitiveness compared with neighbouring countries, following its loss of a ?1.5bn joint investment by Toyota, the Japanese carmaker, and PSA Peugeot-Citro?n of France to the Czech Republic two years ago.

Both Poland and Slovakia had offered incentives such as tax relief, free land and new infrastructure, to lure Hyundai. Poland had proposed Kobierzyce, near Wroclaw in the country’s south-west, as its site.

Hyundai, 10 per cent owned by Germany’s DaimlerChrysler, is one of the world’s fastest-growing car companies, having exported more than 1m cars for the first time last year, representing more than 60 per cent of total sales.

Until now, Hyundai had focused its expansion on the US and, more recently, China, but the opening of a plant in Slovakia would signal the start of its push to become a serious competitor in Europe, led by the Kia brand.

About a third of Hyundai’s exports went to Europe last year and the company aims to double its sales on the continent by 2005. The South Korean company, the world’s seventh-largest carmaker, has set itself a target of breaking into the top five by the end of the decade.

Once dismissed as a manufacturer of cheap and low-quality vehicles, Hyundai is attempting to emulate the success of its Japanese rivals in western car markets by improving quality while maintaining price competitiveness.
Source: Financial Times
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