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Here are Some Quick Ways for Hyundai to Expand Production

December 2, 2011 by

Hyundai has a big problem, one that other car manufacturers would love to have, but at least with a solution available: the automaker has nearly run out of manufacturing capacity. And not just in the United States — worldwide too.

The Korean car manufacturer is very conservative and loathe to build new plants for fear of being stuck with too much capacity. That was the problem of General Motors, Ford and Chrysler, with all three companies slicing and dicing over the past five years to reduce capacity. Hyundai has only opened up one plant in the United States, in Alabama, and is also relying on its corporate cousin, Kia, to supply assembly for its Santa Fe crossover at its lone U.S.. manufacturing plant in Georgia. Both companies are experiencing record demand stateside with Hyundai sales up by 21 percent and Kia up by 35 percent. Hyundai-Kia plants in Korea, Europe and elsewhere are running at full-tilt and Automotive News reports that its U.S. operations will only grow by 8 percent next year, held down by production limits, not demand.

Well, there are some quick ways for Hyundai to expand production and we’ll discuss those options here with you:

Buy a shuttered plant — The Big Three still own a lot of real estate in the U.S. including manufacturing plants that were mothballed in the past 2-3 years and still need to be unloaded. Unfortunately, most of these plants are old and are in states with strong union footholds. Hyundai could snap up a plant for a steal, but then they’d have the UAW organizing its factory workers even before the first car was assembled. Uh, not going to happen.

Take over a competitor — If you can’t beat ‘em, then buy ‘em. That mantra has been used for years, but hasn’t been heard of much lately. However, Hyundai has a lot of cash and could easily buy out another manufacturer or at least team up with one. China’s expanding auto industry is filled with companies that are partnered with foreign manufacturers. At least one should be available. Heck, Hyundai could buy Saab and simply gut its Trollhatten plant to build Hyundais. Hmmm….

Fast-Track a new plant — If Hyundai wanted to build a new plant and get it opened fast, they could do so without much red tape. Hyundai already has a presence in Alabama and can work with state officials to identify the land they want to purchase and submit plans that would be fast-tracked by the governor. You can bet that Hyundai, as well as Mercedes-Benz, has the ear of the governor who could assign a top aide to handle everything. Betcha’ that a plant could be up and running within 18 months of Hyundai making a decision to build. What’s holding the company back? Fear, that’s all.

Outsource the work — Short of taking over a competitor, Hyundai might consider teaming up with a manufacturer and using its current, under-utilized facility. Ford’s Flat Rock plant is shared with Mazda, but Mazda is moving on. That plant is underutilized and could be retooled to build the Veloster or expand Elantra production. Hyundai should look around the world to find plants that aren’t running at full capacity, such as in western Europe, where it can make its cars. Some of those models could be shipped stateside or free up capacity elsewhere to import cars from China or eastern Europe.

Personally, I’m surprised that Hyundai is in this predicament. An 8 percent growth rate in 2012 will look terrible especially if industry sales shoot up much higher than the current 10 percent rate. Hyundai-Kia’s quest for world domination may soon unravel with fast-moving competitors such as General Motors, Volkswagen and Toyota building some distance between Hyundai-Kia and themselves.

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