Slovaks Win Prize of Key Hyundai Plant

BRATISLAVA, Slovakia -- Hyundai Motor Co. chose Slovakia over Poland on Tuesday as the site for a 700 million euro ($870 million) plant as South Korea's top carmaker strives to build a low-cost foothold in Europe.

The factory, with capacity of 200,000 cars per year, will produce KIA-branded vehicles in the northern city of Zilina. It will make Slovakia the world's No. 1 car producer per capita when it comes online in 2006.

The decision marks the second time Slovakia beat out its larger northern neighbor for a major auto investment -- it attracted a similar 700 million euro PSA Peugeot Citro--n plant last year. The news also comes as a blow to Poland's leftist government.

"We will introduce small to mid-sized passenger cars that cater to European consumer tastes," KIA Motors Corp., a unit of Hyundai, said in a statement Tuesday. "In order to have an edge in quality and prices, we will be going along with seven or eight parts suppliers including Hyundai Mobis."

The move is part of Hyundai's strategy to boost its presence in Europe after its success in the U.S. market. KIA aims to more than double its European sales to 500,000 in 2008 from an estimated 240,000 this year, which would be 21 percent of KIA's forecast for total sales of 1.16 million in 2004.

Doubling its output would let Europe rival the United States as KIA's biggest overseas market and help offset slumping sales at home, where big credit card debts have hit consumer spending.

The 700 million euro, 200,000-car-per-year figures were lower than an originally reported 1.1 billion and 300,000 units, but a KIA official said the firm could expand the factory later.

Slovak financial markets had awaited the decision on pins and needles in anticipation that the deal would cause a large inflow of funds that would buoy the currency and boost exports.

But the crown was weaker at 40.535/570 per euro amid fears the opposition could launch a no-confidence vote against reformist Finance Minister Ivan Miklos.

Hyundai, 10 percent owned by Germany's DaimlerChrysler, had narrowed the choice for the factory to the two Central European countries, which will both join the EU in May.

Both straddle a divide between mature Western markets and the quickly growing East, where demand for consumer goods such as cars is rising ahead of accession.

Both offered a variety of incentives including tax holidays and free land to win the plant, which is to be one of the largest investment projects in Central Europe this year.

But business-friendly labor laws and a flat 19 percent tax rate for firms and workers alike have made Slovakia a favored investment destination, particularly in its booming car sector.

With average wages at $520 per month, the small country of 5.4 million people has the cheapest workforce in central Europe, while high unemployment of 16 percent -- second in the region only to Poland's -- ensures a wide labor pool.

"It's a huge success for Slovakia," said Roman Kuruc, deputy director of Slovak investment agency SARIO.