A Move to Avoid Tariff Bomb
As US President Donald Trump has threatened to impose a 25 percent hefty tariff on imported cars, the Hyundai Motor Group is reviewing a plan to produce some of its next-generation models at its Georgia plant in the US, including the next model of the Soul which is scheduled to be produced in South Korea.
According to the auto industry on July 1, Kia Motors decided to produce 50,000 units, 30% of 180,000 units of its third-generation Soul (project name: SK), which will be launched next year, at its Georgia plant in the US. This was the first time that the automaker decided to produce the Soul at the plant in the US.
The Kia Motors Soul is currently being produced at its Gwangju factory in Korea. Seven out of ten Soul cars will be produced in America. If the tariff bomb becomes a reality, Kia Motors will not be able to export the Soul because of its low price competitiveness. "More than 100,000 units of the Soul are exported to the US each year thanks to its strong popularity in the US. If a hefty export tariff is slapped on exported Soul cars, it will be virtually impossible for Kia Motors to export the Soul to the US," said Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics and Trade (KIET). “Kia Motors will have no choice but to produce and sell the Soul in the US.”
With respect to this matter, Hyundai Motor and Kia Motors are concerned that even though they ramp up production of cars in the US, if and when a tariff of up to 25% is imposed on their cars, production cost will rise about 10% a year, weakening their profitability and decreasing sales.
However, this plan is also expected to face some difficulties. If Hyundai and Kia expand production in the US, it will face strong opposition from the labor unions. According to Article 47 of the Kia Motor Collective Bargain Agreement, the company shall notify the union in the event of the shutdown of production of a model and the development of a new project and the adjustment of production volume per hour and see eye to eye with the union on the matters.
The unions of Hyundai and Kia have been expressing dissatisfaction about securing the amount of their work as the two carmakers have scaled up the portion of overseas production. Hyundai Motor's proportion of overseas production grew from 34.8 percent in 2007 to 63.2 percent last year after ten years. Kia Motors's proportion of overseas production which was only 43.5 percent in 2015 surpassed 50 percent for the first time last year only to hit 55%. When Kia’s Indian plant starts operation in the second half of next year, its proportion of overseas production will swell to 58%. The global trade war sparked off by US President Trump is accelerating a vicious cycle which transfers jobs from Korea to overseas countries.