Business News: Hyundai to shift i20 production to Europe

Hyundai Motors India Ltd (HMIL), the country’s second-largest car maker, said it was planning to shift the production of its premium hatchback i20 model for the export market from Chennai to Europe, following recent labour troubles that caused overseas sales to fall behind target. If the move materialises, it will mark a major change in HMIL’s original strategy of making India an export hub for its small cars. “We will address the European market from a local plant there,” confirmed an HMIL spokesperson. Hyundai has a plant in the Czech Republic and another is coming up in Russia. The i20 for the domestic market will continue to be manufactured in India. The i20 is expected to account for 40 per cent of the Korean company’s exports for 2009-10. The company had earmarked 80 per cent or 120,000 units a year of the 150,000 i20s produced in India for the European market. Last financial year, the car maker exported 253,354 units (of all cars, including the i20) from India, about half its annual production. Industry analysts, however, view the move as a means of pressuring the Tamil Nadu government to take tougher measures against labour, following a 17-day strike at the factory which ended on Thursday. “The labour cost is ¤23 a day compared to ¤3 per day in India, so there is no question of the company shifting production and making the car at the same cost as India,” said the executive of an automobile company that has dealings with Korean companies. Troubles had erupted after the company management declined to recognise the registered union and dismissed 65 people, suspended 34 and transferred several others for enrolling in the union. The union had also raised issues on Hyundai hiring contract manufacturers for direct manufacturing and denying leave benefits to workers. The strike was called off after the management agreed to answer about 45 demands from workers, and not take action against them when they return to work. It also agreed not to come to any wage settlement agreement with the working committee till May 20. The strike saw production drop 5 per cent and senior executives said the company met only 85 per cent of its export target.The i20, which is positioned as a premium car in the Indian market (priced at Rs 4.8 lakh), is considered an entry-level car in Europe. Recently, most European governments agreed to offer special exchange bonuses to buyers of new cars. As a result, Hyundai saw exports grow more than 75 per cent in the last financial year.