Hyundai threatens to shift i20 production from India

Shaken by an 18-day workers' strike that was finally called off today, Hyundai Motors India Ltd, the second largest car manufacturer in the country – has threatened to shift the production of its premium hatchback i20 model for the export market from Chennai to Europe.

Hyundai has a plant in the Czech Republic, with another one is coming up in Russia, but had earlier announced that India would become its export hub for small cars. This is now in question. The company has said that the car will continue to be produced at Chennai for the Indian market, but this is just a fraction of the original targeted production that included exports.

The company had planned to export 80 per cent (or 120,000 units per annum) of the 150,000 i20's produced in India. The remaining 30,000 cars would be for the Indian market. The export of i20 is targeted to constitute for 40 per cent of the company's total export target for the financial year 2009-10, which is pegged at 300,000 cars.

The company has already fallen behind target in its export target in the first few months and has met only 80 per cent to 85 per cent of the numbers, and the strike has further set back production by about 5 per cent. "We are contemplating moving out the export production of the i20 completely from India. We will address the European market from a local plant there," a Hyundai spokesperson said.

But shifting the i20 production could adversely impact the company's exports as well as overall sales from India. The i20, which comes as a premium priced car in the Indian market (priced at Rs 4.8 lakh) is considered an entry level car in the Europe. Most European governments have recently decided to give a special exchange bonus to buyers of new cars. About half of the company's monthly produce in India is exported.

Auto experts say that the move out of Chennai by Hyundai is not economically viable, as the labour cost in Europe is almost 10 times higher than in India. The announcement thus appears to be no more than posturing for the Tamil Nadu Government so that it takes tougher measures against labour unrest.