Kia plans its first U.S. factory

S. Korean automaker to build plant in Ga.

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March 14, 2006|By COX NEWS SERVICE

SEOUL, SOUTH KOREA — SEOUL, SOUTH KOREA// A decade ago, few Americans had heard of Korean automaker Kia Motors, despite its half-century history. When the company began exporting cars to the United States in 1994, it sold 12,163 vehicles, many of which had mechhanical problems

"The question often arose from the media and consumers alike," the company's U.S. operations Web site states: "What the heck is a Kia?"

Today, no one who follows the automobile industry has to ask what a Kia is. With a 22 percent increase in global vehicle sales worldwide last year, executives say Kia is "the world's fastest-growing automotive brand."

By 2010, the company expects to more than double its sales, to 2.5 million vehicles - 3.5 percent of the world market - including a half-million sales in the United States.

Analysts said those expectations are in line with past growth. Kia's U.S. sales more than tripled from 1998 to last year, when Kia held 1.6 percent of the U.S. market.

"The U.S., Europe and China are really the three strategic markets of the future, and they are key for us to step up as a global player," said Michael Choo, Kia's manager of international communications.

Kia announced yesterday that it would build a $1.2 billion assembly plant in Troup County, Ga., a plan that Choo said is aimed at helping the company make further inroads into the U.S. market. The factory - Kia's first in the United States - will have about 2,500 employees and is scheduled to begin operating in 2009.

"Our basic strategy globally is to set up manufacturing facilities [in major markets]," Choo said. "It is very important for us to be closer to our consumers."

Troup County is a long way from Kia's roots. The company was founded in Seoul in 1944 to make bicycle parts and, later, bicycles. During the Korean War it moved from Seoul to Pusan, Korea's second-largest city.

As American money and expertise flowed into South Korea during the war and the Cold War, South Korea's economy began to shift away from agriculture. Kia took an early lead in building vehicles, producing the country's first motorcycle in 1961 and its first truck a year later. When it began selling passenger cars in the Middle East in 1974, Kia became the first South Korean vehicle maker to export.

As South Korea has invested in education and research over the past two decades, the quality of Kia cars has surged. Their quality is comparable to that of U.S. automakers' vehicles, said Hirofumi Yokoi, an analyst with the auto industry consulting firm CSM Worldwide.

That advance is partly the result of Kia's - and South Korea's - hard times. After Kia faced bankruptcy in the 1997 Asian financial crisis, the Hyundai Business Group, a giant South Korean conglomerate that owns Hyundai Motors, bought a majority share.

The partnership, now Hyundai-Kia Automotive Group, allowed Kia to learn from more technically advanced Hyundai, analysts said. The combination also benefited both companies by allowing them to combine resources and drive down costs from parts suppliers.

"By sharing their manufacturing platforms and their parts supply chains they are able to reduce costs," said Young Chang, managing director of the Seoul office of UBS Securities.

A major reason for Kia's choosing Troup County is its proximity to Montgomery, Ala., where Hyundai opened a plant last year.

CSM's Yokoi said the Georgia location will help Kia executives better understand the U.S. market and reduce shipping and logistical fees.

"It's natural they want to move manufacturing to the U.S., since it will save them money and provide a first step for them to grow [in the domestic U.S. market]," he said.

Kia's U.S. headquarters in Irvine, Calif., manages dealerships in every state except North Dakota.

The Kia-Hyundai merger has also created challenges. Choo said there is "some risk" that the bigger Hyundai will dominate the Kia brand.

To differentiate the brands, he said, the company has increased Hyundai's marketing aimed at customers who are "a little bit older and more refined," while aiming Kia at consumers who are "young at heart and adventurous."

Kia should appeal to "Generation Y," the more than 70 million Americans born from 1977 to 1994, Choo said.

Asians and Europeans favor smaller cars because of the high-density city living and higher taxes on gasoline, Yokoi said. As the price of gasoline rises worldwide, "more Americans will be looking at compact cars that also perform well," he said.

In Europe, Kia's top-selling model is the Picanto, a tiny four-door sedan that in some models gets 50 miles to the gallon. The car has a minuscule trunk and a price to match, starting at the equivalent of $6,250 in South Korea.

Modest prices remain the top attraction for Kia cars in the U.S. market.

"Kias are 10-15 percent cheaper" than comparable vehicles by competitors, Yokoi said. One reason executives have been able to keep costs down is that South Korean automakers tend to have fewer "legacy costs" - commitments to the health care and pensions of current and retired workers - than U.S. automakers do, he said.

Like Canada and Britain, South Korea has a nationalized health care system, and the government began making companies pay into pension plans only last year.

Executives are working to improve the perception of Kia's quality, partly by offering a 10-year, 100,000-mile power train warranty.

Yokoi thinks Kia is well positioned to expand in the U.S. market and expects the company to show double-digit growth for the next few years. Kia executives have said they expect 16 percent global sales growth this year.

"Kia has a very bright future," Yokoi said.

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