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South Korean automaker Hyundai Motor stated on Wednesday that it will start production at its fifth car plant in Chongqing, China next month so as to meet growing demands for small vehicles and possibly recover sales loss in the world’s largest auto market.

Hyundai’s Vice Chairman Chung Eui-sun said that the facility is a smart and eco-friendly plant that is built in a city that is rising as the country’s future growth engine adding that as a carmaker that caters to eastern and western China, they will also be building high-quality new models for their customers.

Through the joint venture of Hyundai and BAIC Group, Beijing Hyundai invested a combined $1 billion to put up the factory in China which has annual capacity of 300,000 vehicles helping the company boost local output of sport utility vehicles (SUVs), the fastest-growing sector in China.

The plant will also be a part of the automaker’s efforts in stepping up competitiveness as it aims to build 30,000 new compact vehicles from late August as well as four other new ones specifically two compact sedans and two SUVs by 2019 which will be sold throughout the Chinese market.

Hyundai currently has four plants in China whose overall capacity is 1.35 million units, add the latest plant and the company will have 1.65 million-unit annual capacity for passenger cars in the country.

The facility would also allow the company to get the most out of the large and expanding sales opportunity across south-west China where production has been increasing at a fast pace.

Hyundai’s Sales Decline

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Hyundai‘s sales previously weakened after South Korea’s decision of deploying a US missile defense system which angered China causing a widespread boycott of Korean goods and services which eventually resulted to factories being underutilized, triggering concerns of oversupply.

Analyst Lee Jae-il said that there is indeed worry of oversupply but given that the target market is different, Hyundai can be expected to reduce any overlap.

Hyundai’s China sales in June dropped 64 percent to 35,000 units from a year earlier while its subsidiary Kia Motors lost 62 percent to 17,000 units. Overall global sales in January to June period also took a hit falling 8.7 percent.

China makes up more than one-fifth of Hyundai’s sales by volume. The declining sales in the country added a 16.2 percent drop in the company’s overseas sales last month. Kia’s overseas sales fell 14 percent in June from a year earlier.  

The disagreement also aggravated the pair’s other problems in China. Weak brand perception and insufficiency of a line of SUVs as well as an in-vogue market segment left Hyundai and Kia’s share at an eight-year low last year.

In response to the slumping sales, Chung would be meeting with Chinese officials in efforts to save the rapid decline of the country’s operation after diplomatic dispute affected Korean goods and services as well as production of Chinese car brands.

Hyundai has also been putting great efforts to win back Chinese customers as it recently formed a special team with Kia to develop an overall strategy to raise sales.

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