Kia Motors Corp., Korea's No. 2 automaker, said Monday it plans to build a new production plant in Mexico to meet demand in the vast North American market.
The company, a part of Hyundai Motor Group, said it expects a memorandum of understanding (MOU) to be signed with the state of Nuevo Leon that will permit a plant to be built in Monterrey.
"An MOU should be signed next month, with construction to start soon after," a corporate source said. Once work starts, the plant should be able to churn out cars starting from 2016.
The Monterrey plant, not far from the border with the United States, will be Kia's first production facility in the country. The carmaker operates a plant in West Point, Georgia, in the United States, as well as having factories in Slovakia and China.
Kia said the plant will have a capacity to make 300,000 vehicles annually. It will produce compact Soul, Forte subcompact and Picanto minicompact car.
The new plant, once built, will not only expand Kia's presence in Mexico, but ship cars over the border to the United States. Mexico has a free trade pact with the U.S., so cars made there are not subject to duties when they are sold over the border.
Company insiders have said that its Georgia plant, which makes the Optima midsize sedans and Sorento SUVs, has been operating at full capacity for some time. This has adversely affected Kia's ability to effectively meet consumer demand.
Another advantage of a plant in Mexico is that it would allow the carmaker to circumvent the appreciation of the Korean won against the dollar that hurts earnings and price competitiveness abroad.
Kia and its larger sibling Hyundai Motor Co. had intentionally put a cap on expanding output since 2012 so as not to be hurt by quality issues that have plagued other carmakers that have engaged in rapid expansion in the past.
Kia declined to say if the Mexican plant signals an official shift in the carmaker's policy stance to concentrate on quality control instead of expansion.
Related to expansion, Hyundai Motor said that despite some reports, no real headway has been made on building a fourth plant in Chongqing, China.
"Negotiations are under way with the Chinese government, but no understanding has been reached so far," the company said in a press release. (Yonhap)