By on September 9, 2013

hmmausa

For the third time this year, workers at Hyundai’s Montgomery, Alabama, assembly plant have set a production record. The factory turned out a grand total of 37,764 cars in August, 390 more than the previous May record. After an expansion last year, the plant now operates on a 24-hour schedule Monday through Friday. Even so, the company still claims that production constraints are holding back sales, especially of the Sonata and Elantra.

The Montgomery Advertiser reports that Hyundai cut production of the Sonata earlier this year to focus on the Elantra, which now makes up the majority of the product coming off the line. That gambit seems to have paid off, as YTD sales of the Elantra are up 37% from the previous August- on a car with zero general incentives. (The Sonata currently has up to $2000 in bonus cash available, in line with other competitors in that war-torn segment). The breakneck pace of the output is only intensifying rumors that Hyundai will expand the facility. Last year, Hyundai spokesman Frank Ahrens said during a tour of the facility that Hyundai wouldn’t plan to expand any North American production until it could be assured of continued quality. But that hasn’t stopped Hyundai from eking out production gains at Montgomery. Hyundai Motor America CEO John Krafcik told Bloomberg in June that “We have shown the last few years that without a new plant we’ve been very capable of finding incremental production.” Even so, the limits of efficiency are clearly being pushed at this point. And now there are reports that Georgia and Alabama are engaged in serious diplomatic campaigns to expand production at their respective plants.

Business Korea reported that Georgia Governor Nathan Deal met secretly with Hyundai Chairman Chung Mong-koo in Korea on August 20to make a case for expansion of Kia’s West Point, Georgia facility. Hyundai announced a $35 million dollar expansion to that plant a few days later. The new facilities will build components for cars produced at the main assembly plant, and are expected to create around 350 jobs. The same Business Korea report claimed that Alabama Governor Robert Bentley has plans to meet the Hyundai chairman in March. However, this report was denied by the Alabama Department of Commerce, speaking on behalf of the Governor. Instead, a “local delegation from Montgomery” will travel to meet with Hyundai execs. The same Chamber of Commerce spokesman noted that Governor Bentley has already met with the Chairman three times, and that “We believe it has been made perfectly clear to Chairman Chung about our high level of interest in continuing to be of service and benefit to the company in this state.”

Meanwhile, Hyundai has just reached a tentative agreement to end an extensive strike with its unionized Korean workers. After losing close to 50,000 vehicles worth of production, the company reached an extensive settlement agreement with its workforce that includes a costly package of bonuses and raises. This comes a year after Hyundai’s costliest strike ever, which cost the company well over a billion U.S. dollars and tens of thousands of units. Both of these labor actions directly affected U.S. sales, cutting supplies of models like the Santa Fe and the Accent to the bone. Expanded plant capacity in the U.S., where the labor climate is currently much more favorable, represents an insurance policy against further production losses.

Before labor unrest in Korea, Krafcik had predicted 4.4 percent total growth in Hyundai sales this year, well below the overall industry average. After that lost production, Hyundai is now sitting at a grand total of 3% growth YTD. Kia, more heavily dependent on imported models such as the Soul, Rio, and Forte for sales, has lost 2% total volume compared to last year. Hyundai certainly won’t find any extra barriers to growth in the Heart of Dixie or the Peach State. Speaking for Alabama in particular, a Montgomery plant expansion is widely regarded as a matter of when, not if. All it takes is a word from Seoul, and shovels will be ready to break ground on demand.

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30 Comments on “Hyundai’s Montgomery Plant Sets Production Record as Expansion Rumors Intensify...”


  • avatar
    Pch101

    H-K YTD deliveries January – July compared to Jan-July 2012:

    -Retail down 46,700 units
    -Fleet up 44,600 units

    Retail sales are down almost 7% while fleet sales are rising. This is during a period that overall sales for the industry were up 10% during the same period.

    2013 incentives are up from 2012 incentives.

    Inventory on lots is taking longer to move.

    Rather than obtaining your analysis from Hyundai’s public relations department, you should instead look at the numbers. (And these numbers are published by reputable third parties, irrespective of what you may believe.)

    The numbers are telling a very obvious story, and it definitely isn’t a tale of overcapacity. While H-K isn’t exactly in the dumps, the company has obviously hit a bump in the road.

    Consumers are buying more cars, yet H-K is managing to lose them. That is not a capacity problem, by any measure.

    • 0 avatar
      walker42

      Baloney. Why wouldn’t Hyundai’s incentives be up this year, it has the oldest cars. Incentives go up as a car ages. What’s incredible are the sky high incentives on Camry, it’s still new.

      Some fleet is healthy especially today when there is less dumping by the Big 3. Pricing in the fleet market is same as in retail, it depends on supply and demand. Lower supply and a growing economy (more demand) means a higher price for fleet units. it’s pretty simple.

      Hyundai has likely figured out residual values would stay higher selling the 44K in fleet rather than retail, and net them the same or more total profit. Keeps the dealer behavior good too, in preparation for the next Sonata. No whoring out of the product.

      Doesn’t hurt to get your products in the hands of daily rental drivers either. That’s good PR.

      • 0 avatar
        sunridge place

        @Walker42

        Smartest and most relevant comment here. From your comment, I can tell you don’t need me or anyone else to validate it to you.

        A lot of people commenting on fleet are using old thought processes.

        Some segments (especially mid-size) are so cut throat on incentives/pricing in the retail environment that fleet makes more sense if its done right. Others in compact segment are at points in their product cycle that its makes sense to do the same.

        Getting the so-called Best and Brightest to understand that is another story.

        Fleet ain’t what it used to be in pre 2009 era.

        • 0 avatar
          walker42

          Thanks SP. Everyone should keep in mind how retail incentives work. To have gotten that 44K fleet volume out of retail instead, Hyundai would have needed to goose the car pretty good, maybe another $750 or so considering its age (and the behavior of companies like Toyota).

          But it’s not an extra $750 in customer cash on the affected units, the 44K. It’s on ALL of the production, some 210,000/year. If the cross-shopping is high with the Kia Optima and I suspect it is, those units would need a price adjustment too.

          Going 44K fleet is a $750/unit save on 80% of the volume that didn’t need it. You could apply half of that total dollar save to the 44K and have an outrageously competitive lease price, and make a lot more money.

          Like you were saying it depends where the car is in its lifecycle. Retail incentives work great at the beginning when just a little can really boost demand.

    • 0 avatar
      J.Emerson

      “Inventory on lots is taking longer to move.”

      Which inventory? The on-lot time of the Sonata and Elantra has been in decline for the last 3 months. The Elantra has no incentives, and the Sonata’s are about average for the segment. In addition, the Kia Optima’s on-lot time is in decline; the Sorento’s on-lot time is up slightly, but still below average. And incentives are below average for both of the Georgia-built cars. The West Point factory is also running around the clock, and has been for some time.

      I look at the numbers, and the numbers tell me that H-K could probably sell more of its most popular models if it had the capacity to build them. The Sonata’s sales decline was in almost perfect lockstep with declining production, meaning no lag in demand there. Same thing with the Elantra’s sales gain. The less popular models are another matter entirely; perhaps they need to adjust their product mix to better suit demand.

      • 0 avatar
        Pch101

        “I look at the numbers, and the numbers tell me that H-K could probably sell more of its most popular models if it had the capacity to build them.”

        Fleet sales are up. Retail sales are falling.

        Fleet sales are up. Retail sales are falling.

        Fleet sales are up. Retail sales are falling.

        Fleet sales are up. Retail sales are falling.

        Fleet sales are up. Retail sales are falling.

        It should be really obvious what this means.

        • 0 avatar
          sunridge place

          PCH

          Look at where they are in their product cycle…don’t look at the overall market.

          In today’s sales environment, there’s been so much refresh that it throws things off.

          Hyundai was fresher in product a few years ago when others were stale.

          You are not taking that into consideration.

          • 0 avatar
            Pch101

            “Look at where they are in their product cycle”

            You’re arguing that there is a product problem. That doesn’t contradict my point in any way whatsoever.

            The point is that there is no capacity issue. I didn’t name the culprit, I simply pointed out that the capacity story is nonsense given the numbers.

            If there was a capacity constraint problem, then you would not see falling retail sales and rising incentives. Falling retail sales and rising incentives are a classic indication of a lack of demand.

            And when demand is lacking, the problem doesn’t get solved by building more units that people obviously don’t want to buy.

          • 0 avatar
            sunridge place

            I’m not arguing that they have a product ‘problem.’ Nor am I saying you are totally wrong.

            I’m stating a product reality as vehicles start hitting their 3rd and 4th model year they typically start to see some retail regression and incentive increase. Of course, there are exceptions and the overall market and competition does impact that. For mid size, Hyundai has one of the oldest models out there.

            No one can redesign models every two years. Rather than ramp up incentives even more to try to sell….they can look to a healthier fleet market as the alternative for incremental sales to fill the gap.

            The point in incentives is that extra incentives cost for EVERY unit sold…not just the extra 20,000 units you need whereas the fleet sales, while discounted-and not as much as pre-2009, are only discounts on the incremental units.

            Hyundai and Kia are not going crazy on incentives but they are increasing fleet to fill holes in their retail sales as their product are aging. Its probably the smart move to do

        • 0 avatar
          bd2

          Except, fleet sales, as well as incentive spending was really low for Hyundai in 2012.

          In August of 2012, Hyundai/Kia’s incentive spending per vehicles was $1,188 and which means that Hyundai (taking out Kia) had incentive spending per vehicle that was below $1k.

          During that same time period, Honda’s incentive spending was $2,419.

          Now, Hyundai/Kia’s incentive spending has risen to $1,584 for this past August, but it is still among the lowest in the industry (only Honda is lower at $1,498).

          As stated, the difference is that other lineups have gotten newer and Hyundai now has the oldest lineup among the major automakers – but still, Hyundai’s incentive spending and fleet sales is at the lower end of the spectrum.

          And the cycle will soon start anew for Hyundai as an all-new Sonata is due out in about a year (followed by the new Tucson, etc.); so Hyundai’s incentive spending and fleet sales should go back down (not that it is particularly high right now; on a percentage basis, the Camry has a higher fleet rate than the Sonata and it’s a newer model and in overall nos. to fleet, the Camry blows away the Sonata).

      • 0 avatar
        sunridge place

        When things are done right, the summer selling season should show a decline of inventory. There are a ton of other factors that can make the previous statement false given a redesign etc.

        Being a bit fat in supply in May is okay in some cases. May days supply is based on April sales. May sales will be bigger than April sales. This process follows throughout the summer in most cases.

        The same thing happens at end of year.

        Again, there are exceptions when a model changes over at an odd time of year OR a product is selling faster rate than expected.

    • 0 avatar
      bd2

      Need to look at things in the proper CONTEXT.

      Age of lineup, amount of incentive spending/fleet sales in relation to the other automakers, how low the incentive spending/fleet sales was for the prior year, etc.

  • avatar
    J.Emerson

    Correction: the original Business Korea report said Governor Bentley was supposed to meet with the Hyundai chairman in October (next month). That apparently won’t be happening, although the Montgomery delegation is still supposed to go.

  • avatar
    PrincipalDan

    Hmmmmmmmmmmm so I’ve always wondered how the B&B felt about this question (or perhaps it should be a QOTD): What’s more “Buy American”, to buy an “American” car made in Mexico or Canada or to buy a “Foreign” car made in Alabama or Georgia or Ohio?

    • 0 avatar
      Chocolatedeath

      Well Dan, even though I may get some “your stupid” responses. NORTH AMERICA does it for me.

      • 0 avatar
        Silvy_nonsense

        Hopefully none of the TTAC commenters are so brain-dead that they’d call you stupid for making that choice.

        Just out of curiosity why do you favor Canada but not Mexico? They are both U.S. allies, they both border the U.S., they both offer unique and delicious regional cuisines, they both speak English with an accent…

        Its fine to buy what you want and I support everyone on that, but I am curious about the logic of giving Canada a pass and excluding Mexico. What makes Canada special?

        • 0 avatar
          xtoyota

          Let me answer that one
          Mexico.. Drugs-crime-unfriendly gov.

          Canada .. Low crime – friendly gov.

          • 0 avatar
            Silvy_nonsense

            xtoyota – What do those issues have to do with your individual purchase decision? Shouldn’t you be choosing based on assembly quality? Your issues have nothing to do with whether or not a car is well put together. Mexico and Canada are both foreign countries and both border the U.S. Again, why would an American value Canadian jobs over Mexican jobs?

            If a person dislikes the drugs, crime and poverty in Mexico, the best thing he can do is buy Mexican made goods, which helps build and enrich the middle class, who demand law and order, which puts the clamps on crime. A stronger Mexican economy means more and better jobs, which reduces the desire for a better life on the U.S. side of the border. Nut job racists who hate Mexicans would be smart to support trade with Mexico and any U.S. policies that grind away at poverty south of the border. A good Mexican economy will do a much better job of keeping Mexicans in Mexico than that expensive and easily bypassed wall of idiocy we’re building.

          • 0 avatar
            AoLetsGo

            Don’t forget all the Canadian soldiers that fought and died along side American soldiers in WWI, WWII and Afghanistan.

    • 0 avatar
      Silvy_nonsense

      I give equal weight to either. They’re both “American-ish” in different ways.

      When I have to make an actual purchasing decision I lump cars into “American” made (engineered and assembled in the U.S.), “American-ish” (engineered or assembled in the U.S.) and “Foreign”. Trying to break down American-ish more finely is a fun discussion, but when you’ve got to buy a car, its just a good way to give yourself a headache.

      Since there’s no such thing as a 100% U.S. made vehicle (engineered and assembled in the U.S. with 100% U.S. parts content), you’ve got to compromise at least a little no matter what you buy.

      • 0 avatar
        PrincipalDan

        Here’s how I feel. Personally if I was driving all the cars in a given segment and got it down to two or three that I thought were really great I would purchase a car BUILT in the USA over one built in another country regardless of the badge. Why? Because we can argue till we’re blue in the face about where the profits go but if I buy the car built in the USA I know that it is helping put food on the table of someone who works at that factory in this country.

        I had to ask this because my father still considers a Marysville, OH built Honda Accord “foreign” and a Hermosillo, Mexico built Fusion to be “American.”

        Just my two cents.

        • 0 avatar
          AoLetsGo

          Dan
          cars.com took a shot at this issue with an American-Made Index.
          The summary was that the Detroit 3 have 2.5 times the number of American employees in direct employment — at assembly, drivetrain, stamping, casting and tooling plants, research and design facilities, U.S. headquarters, testing grounds than Toyota, Nissan and Honda. Put another way a combined 181,000 employees versus 67,000.

          H and K you ask? Only 7,800 employees or 4.4% compared to the Detroit 3

          http://blogs.cars.com/kickingtires/2012/07/american-made-index-which-automakers-affect-the-most-us-workers.html

        • 0 avatar
          Silvy_nonsense

          Dan – I get your point. I see it a little bit differently. I don’t value assembly jobs over engineering and management jobs. They’re both important to me.

          Engineering takes years of study and years of on the job experience to get really good. If we were to lose those jobs to workers in other countries, it would be difficult and take a long time to recover those skills. Its a lot easier to turn Rosie the homemaker into Rosie the riveter than it is to turn her into Rosie the chief powertrain engineer for front-wheel drive architectures.

          If its designed and tested here, then built in Mexico or Canada, at least we’re keeping the assembly wage money nearby, with our main trading partners. That’s preferable to me than designed AND built elsewhere. South Korean Chevys, the Buick Regal, the Ford Transit Connect, etc. are all great but are designed and assembled overseas (OK, Canada is only across a river….) Regardless of the nameplate, those three cars all fall into my “Foreign” cars list, which is the least desirable to me.

  • avatar
    Hummer

    Very good news for Hyundai, I just hope they make the best decision in choosing to build or add on to increase capacity.

    Back room deals may be enticing at the beginning, but if that is how the operations work for local government, then it doesn’t bode well for the future. Need to choose somewhere that has a track record of business friendly dealings, and policies.
    Not the incentive of having lowered taxes for x amount of time, just to increase taxes to levels that are unsupportable.
    Of course I would hope they all realize this.

    I’m still not sold on the quality from what I’m seeing, and trouble meeting demand may be part of the issue, but if they can correct these problems hopefully it will be clear sailing.

  • avatar
    walker42

    The Elantra is still drop dead gorgeous, one of the best designs of the last 40 years. The segment-average level of incentives on Sonata says a lot considering its age. Going on five years old, a Camry would need $3,000+ to sell at a clip acceptable to Toyota.

    By cutting production on Sonata, Hyundai keeps resale value high for the customer and protects the residual value for competitive future lease rates. What an outstanding foundation on which to build the Sonata brand with the next generation and plant expansion.

    “Nothing less than Elantra level” should be their battle cry for next Sonata.

    • 0 avatar
      bd2

      The next Sonata seemingly corrects all the issues with the current one.

      The front end does away with the polarizing, overly busy lines, the interior gets an upgrade and the ride gets refinement.

      While expansion of Hyundai’s and/or Kia’s US plants may be upcoming, there have been rumblings of Hyundai looking to build a plant in Mexico since Hyundai recently terminated their sales agreement with Chrysler (where Chrysler sells certain Hyundai models such as the Accent under the Dodge nameplate but with the Hyundai badge still affixed) which in all likelihood means that Hyundai will be building its own dealer network in Mexico.

  • avatar
    Omnifan

    Too bad the state of Michigan turned their nose up at the transplants when they were doing site selection. They’re not union, so we aren’t interested said the UAW. Sure could use those jobs up here now.

  • avatar
    Jeff S

    Maybe I am different but I see the Sonota and Elantra as one of the nicest looking vehicles in their segments. Camry was introduced as a new model for 2012 but it was basically a face lift of the old model. The new 2014 Corolla is a totally new design. The Ford Fusion is an all new design as well. Toyota is the one that has the most dated lineup.

  • avatar
    CJinSD

    With J. Emerson and GM’s paid shill cheer-leading for H-K, it is probably as good a time to place your shorts as ever existed. The intersection of misinformation and derangement shouldn’t be ignored.


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