Hyundai Motor plans to boost U.S. capacity as SUV sales rise: sources

[March 11, 2015] By Joe White and Ben Klayman

DETROIT/SEOUL (Reuters) - Hyundai Motor Co plans to expand its U.S. factory, three people familiar with the matter said, hoping to ramp up production of sport utility vehicles (SUVs) as lower oil prices boost demand for gas-guzzling trucks.

Sales of the South Korean automaker's sedans like the Elantra and Sonata are slowing in the United States as consumers take advantage of lower fuel prices to switch to bigger, less fuel-efficient SUVs.

"It's a new assembly line right next to the current Alabama line. State of Alabama is negotiating final terms," one of the sources said, referring to the company's planned new production facility.

A Hyundai spokesman said there were "no plans at this stage" to increase capacity in the United States.

Hyundai Motor's shares rose as much as 3.2 percent to their highest intraday level in about two months on the news, initially reported by South Korea's Yonhap News Agency.

Hyundai currently builds its Santa Fe SUV at affiliate Kia Motors' production facilities in Georgia, while importing Tucson compact SUVs from Korea.

Hyundai's factory in Alabama builds its Elantra compact and Sonata mid-sized sedans.

Two other sources said Hyundai had been considering building a new U.S. assembly line to cope with SUV demand, but they had not heard about a final decision. The sources would not be identified because the matter was confidential.

"Hyundai needs to build a second plant in the U.S," Korea Investment & Securities auto analyst Suh Sung-moon said.

He said Hyundai might transfer Santa Fe production to Alabama, which could also produce the Tucson and a pick-up truck. Hyundai currently does not sell a pick-up truck in the United States.

Yonhap reported the new plant in Alabama would have annual capacity of 300,000 vehicles and start SUV production in 2017.

U.S. sales of Hyundai, a strong performer during the 2009 global economic downturn, rose 4 percent from January to February, lagging the market's 9 percent growth.

Hyundai Motor will launch a revamped version of its Tucson SUV in Korea this month, followed by the United States and other countries.

Kia Motors plans to start production at its first Mexico plant in the first half of next year, to help ease capacity constraints at its U.S. factory.

($1 = 1,124.2100 won)

(Additional reporting and writing by Hyunjoo Jin in SEOUL; Editing by Kevin Liffey, Richard Chang and Stephen Coates)

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