June 4, 2018 / 9:02 AM / a year ago

Hyundai Motor says reviews investing in contract manufacturing

SEOUL (Reuters) - Hyundai Motor (005380.KS) on Monday conducted due diligence on a contract car manufacturing plant site for possible investment, as the South Korean firm seeks ways to cut costs and conserve capital to develop new technologies such as electric vehicles.

FILE PHOTO: The logo of Hyundai Motor is seen at its dealership in Seoul, South Korea, April 26, 2017. REUTERS/Kim Hong-Ji

The move follows Hyundai’s announcement on Friday that it had submitted a letter of intent to consider investing in the plant proposed by the city of Gwangju in the southwest of the country.

Contract manufacturing has been largely used by electronics industry - Apple Inc (AAPL.O) outsources production of the bulk of iPhones and other devices to Taiwan’s Foxconn - and established automakers are gradually embracing contractors too in a bid to save costs.

Canadian auto parts supplier Magna International Inc (MG.TO) produces BMW and other cars, and Hyundai’s affiliate Kia Motors (000270.KS) outsources the production of its Picanto mini car.

But Hyundai’s investment, if finalised, would mark a rare expansion by major automakers into contract manufacturing.

“Even though the investment is confirmed, we are considering outsourcing and securing supplies of an economical new car by investing in a non-controlling stake without participating in the management of the new corporation,” Hyundai said in a statement.

The Joonang Ilbo daily reported last week that the city of Gwangju government is looking to build the plant by 2020 at the earliest and keep annual wages at 40 million won ($37,380), or roughly half that of Hyundai Motor.

The plant, which will have annual capacity of 100,000 vehicles, will require an investment of at least 500 billion won and Hyundai is likely to offer 40 billion won to take a 20 percent stake, the paper said.

Hyundai’s labor union called on the company to withdraw the move, saying that will decrease wages of existing workers and create job insecurity. The union, in a statement, called the move a “political decision,” accusing the automaker of “caving in on the Moon Jae-in government’s pressure” to create jobs.

The company declined to comment on the union’s allegation.

A Gwangju city official said it will try to attract investment from other automakers as well, without elaborating further.

Reporting by Hyunjoo Jin; Editing by Miyoung Kim and Gopakumar Warrier

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