Hyundai's Montgomery Plant Sets Production Record as Expansion Rumors Intensify

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.