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Hyundai eyes plant closure in Beijing: source

China sales continue to lag from missile shield fallout

Hyundai Motor is streamlining its China operations amid sluggish sales.   © Reuters

SEOUL/BEIJING -- South Korea's Hyundai Motor is looking to halt one of its three factories in Beijing operated through a venture with China's BAIC Group, a company source confirmed to Nikkei on Wednesday.

The automaker has suffered sluggish sales in the world's largest car market since 2017, when a U.S.-developed missile shield was deployed in South Korea over Chinese protests. It is now reevaluating its Chinese operations after plants there ran at less than half capacity in 2018.

Beijing Hyundai Motor currently operates five factories in China with a combined annual output capacity of about 1.8 million units. The oldest, which opened in 2002 in Beijing and is capable of producing 300,000 units, is most likely to be on the chopping block.

About 2,000 to 3,000 people are believed to work at the facility. "We still need to coordinate with the local government and other players," the source said, adding that the timing for any closure has not yet been finalized.

Beijing Hyundai experienced a 9% drop in Chinese sales last year to about 750,000 vehicles, down 30% from its peak in 2016. Plant utilization for 2018 is believed to have dipped below 50%, and aging equipment at the oldest Beijing plant was becoming a serious financial burden.

Hyundai considered China a core component of its growth strategy until recently, opening its newest factory in Chongqing in 2017 and inviting South Korean President Moon Jae-in to visit local facilities. But new-car sales in the country fell for the first time in 28 years in 2018 by about 3% amid an economic slowdown. Some locals also continue to shun South Korean vehicles due to diplomatic tensions caused by the Terminal High Altitude Area Defense missile shield.

The automaker plans to reduce sales incentives to cut costs, expand operations in Southeast Asia, and implement structural changes in China in order to regain its footing, the source said. But many of its rivals share the first two goals, making the third that much more important to Hyundai.

"Shutting down a factory is not easy," the Hyundai source said. Beijing Hyundai reportedly began offering voluntary retirement packages around the Chinese New Year holidays in February, and aims to iron out details of possible reforms in the first half of 2019.

Other automakers are cutting back in China as well. Japan's Suzuki Motor announced in September that it will stop all production in China. Ford Motor plans to lay off 2,000, or about 10%, of employees at its key joint venture there.

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