Hyundai Motor Company's chairman, Chung Mong-koo, halted capacity expansion two years ago, but according to a Reuters report, there are indications the company might soon lift the ban. Chung's unofficial capacity freeze was a result of concern that Hyundai risked running into quality issues by expanding too quickly. However, Reuters reports that some executives now feel more confident about the quality of the group's vehicles. While the freeze remains in place, sources have told Reuters that feasibility studies are being carried out on expanding production into Mexico, as well as the potential for a fourth plant in China, though the studies could still be vetoed. A decision on a Chinese plant is said to be possible by the end of the year, with Chongqing, Xian, and Wuhan reportedly under consideration, while a third facility in the United States has been considered, but the company is cautious about adding a new plant in this competitive, crowded market. Reuters reports Hyundai's operating margin at a strong 9.5%. Hyundai and Kia have targeted selling 7.86 million units in 2014, up from 7.56 million in 2013, through adding shifts and production at plants approved before the freeze—production has increased to 7.4 million units from a pre-freeze level of 6.5 million. The Reuters report suggests that the change in strategy may be in response to higher labour costs and sluggish growth prospects in South Korea. Officially, a Hyundai spokesperson said, "Investment opportunities are always under review. We will respond to market situations accordingly."
Significance: Hyundai has been struggling with capacity constraints, getting 105% of installed capacity out of its plants and running the US Georgia and Alabama plants flat-out, with reported utilisation rates of 125–130% on two shifts a day. Additional capacity could take Hyundai past the 8-million-unit capacity mark. IHS Automotive forecasts that Hyundai will cross the 8-million-unit production mark in 2017 and the 8-million unit sales mark in 2018, in part based on expectations for an expansion of the Montgomery, Alabama (US) plant and production in Sandand (India).
