Kia to Invest $1 Billion on Indian Car Plant

By Anant Vijay Kala Features Dow Jones Newswires

Kia Motors Corp. plans to invest more than $1 billion in India, hoping to capture new customers in the growing market and mirror the success of its sister company Hyundai Motor Co.

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The South Korean carmaker said Thursday that it plans to invest about $1.1 billion to build a factory for its first foray into the South Asian nation.

Kia will start building the facility in the southern state of Andhra Pradesh by the end of this year. It expects to start production in the second half of 2019 with a capacity to build 300,000 vehicles a year.

"It will enable us to sell cars in the world's fifth-largest market, while providing greater flexibility for our global business," Han-Woo Park, president of Kia Motors, said in a statement. "This is our latest step towards becoming a leading global car manufacturer."

Kia is the latest automobile manufacturer to bet big on India--Hyundai Motor Co., Ford Motor Co., General Motors Co., Toyota Motor Corp. and Honda Motor Co. all are battling for a bigger share in the fast-growing market. Maruti Suzuki India Ltd., the Indian arm of Suzuki Motor Corp. dominates the market, which now contributes almost half of Suzuki's global sales.

Kia is looking for new areas of growth. Sales of Kia and Hyundai have been lackluster in China, the U.S. and other key markets. In January, Hyundai and Kia, which together form the world's fifth-largest auto maker by sales, set a combined sales target for this year of 8.25 million cars, up less than 2% from last year. That is a big change from just a few years ago, when the auto makers managed to achieve double-digit growth, aided by a weak local currency, sleek designs and clever marketing.

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India continues to be one of the world's most promising markets as an increasing number of families can afford cars as incomes rise. Passenger vehicle sales in India grew 9% to 2.79 million in the year ended March 31.

"The Indian market remains attractive due to its healthy growth rates," said Subrata Ray, senior group vice president at rating firm ICRA.

India's market will likely continue to grow around 10% for the next five years, analysts say, in sharp contrast to developed markets which have been slowing.

Maruti has been the best selling brand for years with 47% of the passenger car market. Hyundai is second with around a 17% share. Many other companies have joined the race but few have succeeded in getting large market shares.

"We believe it will be very difficult for a new entrant," said Nitesh Sharma, a research analyst at PhillipCapital. "In India--more than cost--what matters is post-sales service and brand image, which take time to build."

Indeed, big investment doesn't automatically translate into sales. Ford bet big with new facilities in India two years ago and still has just a 3% market share. General Motors last year said it has put its $1 billion investment plan in India on hold as it reshuffles its product plan to better meet changing consumer tastes and jump-start its sluggish performance in the fast growing market.

"We are conducting a full review of our future product program in India, " a spokeswoman said at the time. "We are also putting on hold future investment in our all-new vehicle family in India until we firm up our product portfolio plan."

The shares of Maruti as well as Tata Motors Ltd., another top auto maker in India, were little changed after the news Thursday.

Write to Anant Vijay Kala at anant.kala@wsj.com

(END) Dow Jones Newswires

April 27, 2017 08:01 ET (12:01 GMT)