Hyundai Motor to Cut China Jobs After Sales Slump

A security guard is seen at the main entrance of a plant of Hyundai Motor Co on the outskirts of Beijing on Jan. 25, 2019. Jason Lee/Reuters

SEOUL/BEIJING—Hyundai Motor said its Chinese joint venture (JV) is accepting voluntary retirements and reviewing various “optimization plans” at its factories following a slump in car sales in the key market.

China saw its first auto sales contraction in more than two decades in 2018 as pressure from a crippling trade war with the United States and the phasing out of tax cuts on smaller cars pummeled business in the world’s biggest car market.

A bleak outlook as China’s economy slows has prompted many automakers, such as Nissan, to cut production in the country or, as with Suzuki Motor, even exit it.

For Hyundai, troubles have been exacerbated as it is also just recovering from a diplomatic row between Seoul and Beijing that had slammed demand for South Korean products in China.

Hyundai, which with its affiliate Kia Motors was the No.3 automaker in China until 2016, turned in sales that were only half of its total production capacity last year.

“Hyundai Motor is reviewing various optimization plans to enhance facility efficiency around the Chinese New Year holidays,” it said in a statement on Jan. 25.

Chinese financial magazine Caixin reported that Hyundai’s local joint venture expects 1,500 spare working roles in the first quarter, and has asked staff to choose to stay or leave, citing an internal document.

A spokeswoman for Hyundai said no decision had been made on the number of voluntary retirements.

Hyundai’s China sales sank 23 percent in the fourth quarter amid a lack of attractive models and strong branding in the face of competition from both Chinese and global car makers.

For the year, Hyundai’s sales stayed nearly flat at 790,000 vehicles in China from a year earlier, compared with its total capacity of 1.65 million vehicles.

Idling

Hyundai has idled Chinese factories for a number of days since November because of rising inventories, a source familiar with the automaker’s operations in the country said.

Late last year, its factory utilization rates hovered below 50 percent, except for at its Beijing Hyundai Motor Company Plant 3, he added.

“We are agonizing over how to improve our competitiveness in China. It is a very tough situation, but we are trying to turn around China operations next year,” another source with direct knowledge of Hyundai’s China operations told Reuters.

The weaker demand in China, as the economy grows at its slowest pace in about three decades, has also hurt other foreign players. In September, Suzuki Motor said it would exit the Chinese market, while, a source says, Nissan plans to produce fewer vehicles in the country in the months ahead.

At Hyundai’s China JV, two workers said they were told in a briefing the plant was not being shut down, but being turned into a production line for new energy vehicles (NEVs).

The Hyundai spokeswoman declined to comment on NEV plans.

Hyundai has offered to move employees from its Beijing No.1 factory to Cangzhou, Chongqing—where it has one plant each—and to its two other plants in Beijing, three people briefed on the matter told Reuters.

By Hyunjoo Jin & Yilei Sun