Hyundai Motor clashes over sourcing

REUTERS
Published Sep 6, 2017, 12:37 am IST
Updated Sep 6, 2017, 12:37 am IST
Partner wants Hyundai to use cheaper local parts.
Hyundai, along with affiliate Kia Motors, has been caught up in a political row over a missile defense system deployed in South Korea, but opposed by China.
 Hyundai, along with affiliate Kia Motors, has been caught up in a political row over a missile defense system deployed in South Korea, but opposed by China.

Beijing/Seoul: Hyundai Motor is at loggerheads with its Chinese partner over efforts to cut supplier costs, as they grapple with cut-throat competition and the impact of a stand-off between Beijing and Seoul, four people familiar with the dispute said.

Hyundai, along with affiliate Kia Motors, has been caught up in a political row over a missile defense system deployed in South Korea, but opposed by China.

That has come against the backdrop of ever tougher competition from local Chinese automakers.

Until last year, Hyundai and Kia ranked third in China by sales. But Hyundai’s sales alone have slumped 41 per cent from January to July, fraying relations with local partner BAIC Motor Corp and making this the biggest crisis since it entered the Chinese market in 2002.

Last month, Hyundai suspended production at its four China plants for a week after a French supplier refused to provide fuel tanks when its bills went unpaid. On Tuesday, Hyundai suspended production at one of its plants in China after a German firm went unpaid.

Hyundai and BAIC — whose Beijing Hyundai joint venture is a 50:50 partnership — are divided over how to solve the issue of suppliers and tougher competition.
Hyundai wants to protect its South Korean supply chain, while BAIC favors shifting to cheaper Chinese suppliers to cut costs, the people said.

“BAIC wants to solve this aggressively and is ... asking Hyundai to change its sourcing strategy significantly and immediately,” said the head of a Hyundai supplier based in Seoul, adding the idea was to source more locally from cheaper suppliers in China.

Hyundai wants to solve this more gradually “over perhaps 5-10 years and do so in phases,” the person said. BAIC declined to comment. A Hyundai spokesperson said: “Hyundai Motor and Kia Motors have been continuously trying to source competitive parts in China.”





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