Under pressure, Hyundai clashes with China partner over suppliers- sources

REUTERS: Hyundai Motor Co is at loggerheads with its Chinese partner over efforts to cut supplier costs, as they grapple with cutthroat competition and the impact of a stand-off between Beijing and Seoul, four people familiar with the dispute said.

Hyundai, along with affiliate Kia Motors, has been caught up in a political row over a missile defence system deployed in South Korea, but opposed by China. That has come against the backdrop of ever tougher competition from local Chinese automakers.

Until last year, Hyundai and Kia ranked third in China by sales. But Hyundai’s sales alone have slumped 41 percent from January to July, fraying relations with local partner BAIC Motor Corp Ltd and making this the biggest crisis since Hyundai entered the Chinese market in 2002.

Last month, Hyundai suspended production at its four China plants for a week after a French supplier refused to provide fuel tanks when its bills went unpaid. Yesterday, Hyundai suspended production at one of its plants in China after a German firm went unpaid.

Hyundai and BAIC - whose Beijing Hyundai joint venture is a 50:50 partnership - are divided over how to solve the issue of suppliers and tougher competition. Hyundai wants to protect its South Korean supply chain, while BAIC favours shifting to cheaper Chinese suppliers to cut costs, the people said.

“BAIC wants to solve this aggressively and is ... asking Hyundai to change its sourcing strategy significantly and immediately,” said the head of a Hyundai supplier based in Seoul, adding the idea was to source more locally from cheaper suppliers in China.